In this video Milton Friedman presents a short argument in favor of free markets.

His argument is three-fold: on one hand capitalism, the division of labor and free markets gives us the opportunity to enjoy commodities and services that under some other economic regime we might have had no access to. This is not stated directly, but rather implied as he notes that there was no commissar sending orders from an office that produced the pen an obvious reference to centralized economies. On the other hand, he argues that the free markets are an efficient mechanism and thats why we can purchase a pen, manufactured thanks to the work of thousands of people, in such a small price. Finally, he praises the harmony and world peace that is due to world capitalism. His whole argument is based on the idea that a pen that requires a lot of work, from people in many different countries of the world, is able to be manufactured and sold in a low price only under a regime of division of labor, free trade and free markets. In this essay we will present the mainstream liberal thinking that supports this idea as well as the microeconomic analysis that supports it, and then move on to a critique of both the short argument of Friedman, as well as the free markets doctrine in general. Liberal economic thinking evolved from earlier philosophic schools such as Mercantilism, Scholasticism and the Physiocrats, through a dialectic procedure of criticism. Philosophers John Lock, David Hume and others set the ground for what it would eventually become the rise of a new era of thinking, with the [..]Wealth of Nations of Adam Smith, and the Classical Political Economy they represented. The cornerstone of this school of though became the demand for free markets, markets that worked without the intervention of the state. The pursuit of individual welfare would lead to an increase in the well-being of the whole society. The role of the state would be solely to secure that the markets would work without any distortions such as monopolies etc. Classical Political Economy eventually evolved into neoclassical, through the need for micro foundations of the theory, and the shift of the mainstream thinking into giving use value a strong position in the theory. Post WWII policy makers set aside the neoclassical paradigm, and introduced Keynesian economic policies, that demanded regulation of the markets and an intervening state that would secure full employment. Never the less, neoclassical thinking and research did not vanish, and by the late 70s the neoliberal doctrine begun to rise; Friedman and the School of Chicago in the South American and South Asian dictatorships, Thatcher in England, Reagan in the U.S. and eventually the reign of the Market Economy spread throughout the western civilization. Capitalism took credit for the unprecedented economic and social growth of the post WWII golden age of capitalism, labor forces had already make peace with the capitalists in that period in exchange for a safer working environment (literally and financially speaking) and a bigger piece of the pie of profits and the need to stop the decrease of the profits of the western capitalists economies, eventually led to the take-over of neoclassical economic policies. On the academic level, neoclassical theories had a rather strong foundation. Micro foundations gave the appearance of a more concrete and trustworthy theory; the discovery of theorems that supported the existence of Smiths Invisible Hand gave them the ability to be presented as a scientifically proven truth. A. Lerner, K. Arrow, G. Debreu and others provided proof of the existence of two major welfare theorems that seemed to ensure that A. Smith and the classical and neoclassical economists were right. But the whole classical theory, as well as the welfare theorems, was based on strict assumptions that allowed vast criticism, even by non-Marxists economists. Criticism of capital production and of Bourgeois democracy dates back to the spread of industrial revolution. Utopian socialists such as Fourier and Owen, communists (Marx, Engels, and later Luxemburg, Gramsi, Lenin, Althusser, and others) and anarchists such as Godwin, Prudton, Bakunin and others, provided a critique on capitalism from different perspectives. Capitalism is, for some, a mistake of mankind that should be overthrown, or an inevitable state that we should pass in order to end up at the effective organization of the economy an society that is communism. It is important to note that, even though moral critique can be found in the work of Marxists and left-wing economies (e.g. the alienation of the worker from the work he produces, the exploitation of humans by other humans), the cornerstone of the critique was the inefficiency of the capital organization to establish ongoing growth with no crises and full employment. The process under which capitalism produces periodic crises is known from the 19th century. On top of that, Marxist analysis indicates that it is doomed to be self-destructed under the burden of constant need for increasing surpluses. Let us now turn to a more specific aspect of the critique against the neoclassical paradigm; a criticism that comes not only by the Left, but also from a big part of capitalists economists Keynesians and others. In theory, the effectiveness of the markets Pareto optimality, and clearing markets as demonstrated by the Welfare theorems, is based on the assumptions that the market is competitive, firms do not have increasing returns to

scale, and that there are no externalities in the market. Even if we agree on the decreasing returns to scale, the other two assumptions stand far from the reality. Probably never in the history of capitalism has there been a competitive market. Even in countries where the stated was shrank to minimum (e.g. Chile) oligopolies and monopolies where established and even today, centuries after the rise of capitalism, capitalist countries are giving birth to, apart from monopolies and oligopolies, monopsonies and oligopsonies, as well as other types of free market distortions. Left-wing analysis has shown that these types of anomalies are a normal consequence of the capitalist production. Even though neoclassical and Keynesian economists argue that the role of the state is to secure that the markets stay competitive, no real solution has been found and it is doubtful that it will ever be. The demand for lack of externalities is also a big barrier that has to be overcome somehow. How can we build an economy where there are no externalities? How can we keep a market sterilized? No matter what regulations we impose, can we be sure that there will never be a firm that affects directly another firms production? Imperfect information, information asymmetry, moral hazard, adverse selection and externalities such as pollution and climate change are problems that will inevitably lead to market failure. Theories that are based on rationality, perfectly competitive markets and no externalities have little empirical on analytical use, they cannot describe real-life economies, and seem to be used, eventually, only as an intellectual academic puzzle. We end this essay with a brief comment on the logic and rationality of Friedmans argument. He presents himself with a pencil manufactured under the state of division of labor and free market trade. Then he makes a giant leap by arguing that only under these circumstances could the pen be manufactured, and that free markets promote world harmony and peace. This leap is a hubris against the rational and inductive thinking, that has been constructed so carefully and preserved under harsh circumstances (it survived the middle Ages, the Holy Inquisition, and other enemies of rational thinking) throughout the ages, by mankind. I certainly believe that there are arguments in favor of capitalism. Rational and coherent arguments, but this is not one of them. On one hand, production has been achieved, no matter what Friedman thinks, under other economic regimes. The industrialization of USSR was unprecedented, as well as the enormous economic boom that was caused by Keynesian policies, the Marshal Plan etc in the late 50s to late 70s. Neither one of them was based on deregulation of the markets, quite the opposite. The economic and social growth of both the Soviet Union and the golden age of capitalism, cast a shadow onto the neoliberal achievements in South America and contemporary European Union. And this brings us to the final note of Friedman; the world peace and harmony that capitalism and free markets are supposed to offer us. History, as well as theory, disproves Friedman. The inequality that capitalism produces, both in textbooks and in real life, is an inevitable effect of this type of organization of production. The need for accumulation of capital produces oligopolies which result in inefficient and suboptimal production and eventually increase poverty and inequality. Imperialistic wars are fought for the past two centuries, in order to ensure that markets will enlarge so profits will rise and that there will always be access to cheap raw material. The experiments of the school of Chicago resulted in millions of deaths by the dictatorship regimes (no democratically elected government could have imposed the neoliberal agenda at such scale at the time), hyperinflation and extreme decrease in the standard of living for the poorer households (due to, amongst others, the privatization of nearly the whole public sector-education-healthcare). Last but not least, current crisis in Europe, the paradise of neoliberal economic policy, and the worsening of the crisis while the neoliberal doctrine becomes more strict, disproves Friedman, both his economic arguments, as well as his social ones.