Two Paradigms of Capitalism : Ayn Rand and Milton Friedman

Two Paradigms of Capitalism : Ayn Rand and Milton Friedman

Ayn Rand and Milton Friedman are two of the most influential thinkers in the study of capitalism. While both of them advocate for a free society in which there are minimal governmental interventions and regulations, they differ greatly in their perspectives. Rand, as a writer, examines the topic on an individual basis and stresses the importance and necessity of capitalism to the individual rights of men. On the other hand, Friedman, as an economist, focuses on the big economic picture and argues that capitalism is critical to the political freedom and welfare of the society. This essays will examine Rand and Milton's definitions of capitalism, compare their central arguments, and evaluate their relevance and limitations in the real world.

Rand, in her book Capitalism: The Unknown Ideal (Rand, 1967), defined capitalism as “a social system based on the recognition of individual rights, including properties, in which all property is privately owned”. According to Rand, the recognition of rights also implies the “banishment of physical force”, or in other words, individual freedom. Friedman has a remarkably similar definition of capitalism, as he stated in Capitalism and Freedom (Friedman, 1962): “A working model of a society organized through voluntary exchange is a free private enterprise exchange economy what we have been calling competitive capitalism.” Both Rand and Friedman's definitions share two key characteristics: individual freedom and private ownership.

However, it is important to note the two distinct perspectives that Rand and Fried advocated capitalism and derived the notion of individual freedom and private ownership from. Rand advocated for capitalism from an individual's perspective. She argued that rationality is the most fundamental survival tool for human beings, and that it is the property of an individual and can only be performed by the individual. A rational mind does not work under compulsion and cannot be imposed by another individual. Thus, in order to protect an individual's rationality, it is critical to have a capitalist society to keep individuals from, as she put it, the “initiation of physical force” (Rand, 1967). In other words, Rand considered capitalism as the only social system in agreement with her objective theory of value and ethical individualism.

While Friedman recognizes the individual perspective of capitalism , as he mentioned “freedom as a value in this sense has to do with the interrelations among people” (Friedman, 1967), he mainly focuses on the societal perspective. He sees capitalism primarily as a means to promote political freedom and to coordinate the economic activities of large numbers of people. In fact, individual freedom and private ownership are what separate economic power from political power. They also prevent power from being concentrated in the government because economic power, dispersed among individuals, can offset and balance the power of government. On the other hand, capitalism serves as an preferred method to coordinate economic activities of millions of people. The alternative, a system based on a central control system, cannot function well because the increasingly sophisticated division of labor makes it almost impossible for any central planner to coordinate efficiently.

Remarkably, neither Rand nor Friedman considered capitalism an intrinsically valuable system, unlike some collectivists who regard collectivism as a self-evidently worthy goal to pursue. Rand and Friedman derived the value of capitalism from a greater good based on their own philosophical or economic approaches respectively and concurred in their view of key features of capitalism. This can be seen as a testament to the vitality of capitalism and suggest that the key features of capitalism may be universally applicable.

Rand and Friedman adopted different methodological approaches towards capitalism. Thus, even though they agree on the fundamental features of capitalism, they probably differ in how to interpret these features. One difference is the notion of property right, which can be illustrated in the following scenario. In Rand's novel Fountainhead (Rand, 1943), the protagonist, Howard Roark, dynamited the building he designed because it was not built in the way he intended. Rand certainly acclaimed Roark's action, evidenced by that the court in the novel found Roark not guilty. In a way, Roark was speaking on behalf of Rand about the value of individualism and being true to oneself. An interesting question to ask then is how the destruction of a building by its architect would be viewed by Friedman – had Friedman been the judge, Roar probably would not have won his case. Friedman regard property right, without which there can be no private ownership, as one of the most important conditions of a functioning capitalist society. He even believes that the protection of property right is one of few cases in which government intervention can be justified. Therefore, Friedman probably would see Roark's destruction as an infringement of the property right of the owner of the building. Certainly Roark designed the building, but this does not entitle him the right to destroy it. In Friedman's view, one of the roles of the government is to ensure that Roark cannot destroy a building that is the property of another individual.

Rand also took the notion of property right seriously, but in a different sense. In her view, rights are “a moral principle defining and sanctioning a man's freedom of action in a social context” (Rand, 1967). To Rand, property right is the freedom to dispose the product of one's effort. Thus, it is completely reasonable for Roark to dispose his design as he wishes, even to destroy it. There is a great distinction between Rand and Friedman on the notion of property right. Rand believes that knowledge, thinking and rational actions are all properties of an individual and property right means the freedom to excise one's rational faculty. On the other hand, Friedman considered property right to be the ownership of physical objects, such as capital and land, which are factors of production.

Such distinction reveals differences between Rand and Friedman on a deeper level. Rand was primarily concerned with what is right and what is wrong on a moral basis, but she may not have thought about how capitalism functions in the real world. It is hard to imagine a real world in which every person is like Roark and how they can possibly cooperate with each other. Rand defined the virtues in a capitalist society but not the rules for it to function. In her approach to the study of capitalism, Rand adheres strongly to the ideal of Roark: be true to herself and not care about the rest of the world. On the contrary, Friedman, as an economist, is primarily concerned with how to build a functional capitalist society. In Capitalism and Freedom (Friedman, 1962), Friedman discussed various practical issues in great details, such as monetary and fiscal policies, the right degree of government regulations and how to maintain social equity and welfare. Analogously, Rand explains what a delicious pie should be like, whereas Friedman demonstrates how to bake a delicious pie. And of course, they probably have different recipes in mind.

It is not meaningful to judge which of Rand and Friedman's approaches to capitalism is more convincing or meritorious from a theoretical or philosophical point of view, because they are simply two separate paradigms. However, we can examine and compare them with respect to their applications to the real world. Neither Rand nor Friedman advocates for a pure capitalism where there is no government or restrictions of freedom, because they recognize some weaknesses in capitalism. One inherent flaw of unrestricted freedom is the freedom to restrict freedom. In other words, some individuals may coerce others to act against their own interest or restrict the choices of others. In the real world, it can manifested as crimes such as robbery or as monopolistic behaviors. In the former case, both Rand and Friedman recognize that there needs to be a government to protect man's rights, i.e., to protect him from physical force. In the latter case, they differ. Rand argues that collusive monopolies cannot exist in a free market because collusion among producers to raise prices will discourage new producers to enter and to compete (Rand, 1967). However, this is not always the case in the real world. There exists many industries, such as telecommunication and public utility, which has a high barrier to entry as a result of the infrastructure cost. These are natural private monopolies that can restrict consumer's choice and thus limit their ability to enter into truly voluntary agreements.

Friedman suggested a more applicable approach: let government enforce anti-trust laws, but measures need to be taken to prevent the creation of an even worse form of monopoly, government monopoly. This approach is much more relevant to today's society. While we may disagree on the optimal degree of government intervention, this system, having existed for decades, has delivered so much freedom both economically and politically, and does not have the negative consequences mentioned by Rand of developing into an ever increasing statism (Rand, 1967).

In conclusion, Rand and Friedman both see capitalism as a social system based on individual freedom and private ownership, but they derived the characteristics of capitalism from two different perspectives: Rand sees capitalism as a means to promote individualism whereas Friedman sees capitalism as a means to coordinate social-economic activities and protect political freedom. This distinction is reflected in their different notions of property right, and their different methodological focuses: Rand focuses on morality whereas Friedman focuses on practicality. The result is that Friedman's theory is more relevant to our society and Rand's view may be too idealistic to be applied in the real world.

1. Rand, A. (1967). Capitalism: The Unknown Ideal. New American Library.
2. Friedman, M. (1962). Capitalism and Freedom. University of Chicago Press.
3. Rand, A. (1943). Fountainhead. Bobbs Merrill.