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Capitalism & Democracy

By Monica Zheng

At the cornerstone of the late economist Milton Friedman’s legacy is his magnum opus, the

1962 work Capitalism and Freedom. This classic work would go on to promote some of Friedman’s

most famous and contentious arguments, one of which is that capitalism is ideally suited for the

promotion of democracy. To understand where this claim comes from, we must first accept

Friedman’s notion that “there is an intimate connection between economics and politics” (8).

Friedman further asserts that economic freedom is a precondition for political freedom and is the

pathway to true freedom for the individual man. From there, Friedman denotes capitalism as the

economic system that best maximizes our economic freedom, as it “provides economic freedom

directly” (9).

From a historical standpoint, Friedman seems to be on the right path. We are reminded that

“the typical state of mankind is tyranny, servitude, and misery”, that is until the 19th and early 20th

century of the Western world when “political freedom...clearly came along with the free market and

the development of capitalist institutions” (9-10). This example, amongst others, begs us to

reconsider the idea that it could all just be “sheer coincidence that the expansion of freedom

occurred at the same time as the development of capitalist and market institutions” (11-12). Yet

history also shows us that employers or capitalists “have fought tooth-and-nail against the

establishment or extension of political democracy”. This statement necessarily puts a dent in

Friedman’s argument, and by extension casts doubt on his ultimate claim that capitalism is ideally

suited for the promotion of democracy.

In this paper, I intend to analyze Friedman’s capitalism-democracy argument more closely by

first examining his claim that capitalism best maximizes economic freedoms before moving on to
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analyze his second claim that capitalism is ideally suited for the promotion of democracy. In so

doing, I find that Friedman’s arguments are valid, but does not embody the entire picture.

Friedman’s first claim is that capitalism maximizes our economic freedoms. This claim is

built on four propositions: a) that capitalism is based on exchange, b) that this exchange is for

mutual benefit, c) that exchange of this kind implies that no party can coerce the other, and d) that

power is dispersed in a free market (Chibber, Feb. 5).

The first proposition states that capitalism is based on exchange. Certainly, in a capitalist

system, exchanges are a common sight as customers and capitalists engage in transactions, the

customer giving the capitalist money in exchange for goods. Likewise, employers and employees

(otherwise known as a capitalist and his workers) also engage in exchanges behind the scenes. In this

case, the capitalist gives workers wages in exchange for their labor power. So, on the whole,

Friedman’s first proposition is technically correct.

However, the critique I have toward the first proposition of Friedman’s first claim is not

what is stated, but what is left out. In short, Friedman’s first proposition does not paint the entire

picture. What the proposition does not state is that capitalism is, even more, a system based on

capital accumulation, profit maximization, and class struggle. When capitalists seek to accumulate

more capital and maximize their profit, one of the first places they take advantage of is labor. Labor

extraction becomes a science, as capitalists study how best to control, wield, and extract as much

labor power from their workers as possible (Braverman). To not highlight this vertical relationship

as a crucial element of capitalism is to ignore the significant and powerful role a capitalist plays in an

exchange, leaving out a significant detail in this proposition.

If capitalism is to be based on something, the topic of slavery is also something that cannot

be dismissed. In the history of American capitalism, there is little doubt that our current capitalist

system was built upon slavery, a practice that could hardly be called an exchange (Beckert and
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Rockman). The capitalist took, by force, his slaves’ labor, for which he made a profit off of. To

dismiss this entirely or to equate this part of American history with the word “exchange” is to be

ridiculously naive. All in all, Friedman’s failure to address these points shows that while the first

proposition is correct, it is not entirely truthful.

Friedman’s second and third propositions, that exchange is for mutual benefit and implies

that no party can coerce the other, go hand-in-hand. To break down these two propositions, one

must understand that Friedman believes every individual has two choices when it comes to an

exchange: to trade (to sell) or not to trade (leisure) (Chibber, Feb. 5). Thus, what results in an

exchange or trade is only to the mutual benefit, or gains, of both parties. Once again, however,

Friedman fails to address the whole picture. In this case, Friedman fails to acknowledge the weight

of existing resources in determining a party's ability to choose to engage in an exchange.

The weight of existing resources can do much to contribute to a party’s choice. For example,

the capitalist is able to use his resources to manipulate legislative policies and market demands in his

favor so that he can ensure the greatest benefit to himself. At the very least, the capitalist is able to

walk away from an exchange (if he does not find the trade appealing or beneficial enough) with no

harm, no foul, no loss. Someone with fewer resources than the capitalist would not have the same

ability or luxury to walk away and choose leisure. When push comes to shove, a worker may likely

trade his product—his labor power—for less than it’s worth, perhaps even at a loss. Would such an

exchange really be beneficial to the worker? Rather than experiencing a gain, it seems that the

worker may be experiencing a loss even as he makes an exchange. The truth is when a worker

engages in an exchange, there is no way of knowing if the outcome will be beneficial (his outcome is

determinant on the number of existing resources he has, thus influencing his ability to really choose

whether to sell or walk away). This same issue does not hold true for the capitalist; an exchange is

always to his benefit because he has the resources and ability to truly choose.
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Friedman maintains that an exchange — in his words stated as a situation when “both

parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and

informed—is possible due to the free market; “the consumer is protected from coercion by the seller

because of the presence of other sellers with whom he can deal” and “the seller is protected from

coercion by the consumer because of other consumers to whom he can sell” (13, 14). But how can a

transaction be voluntary if there are precisely there are no other parties around to trade with?

Journalist Spencer Soper presents this scenario in his article, “Inside Amazon’s Warehouse”,

as he brings attention to the harrowing and dangerous labor practices that occur in Amazon’s

Lehigh Valley warehouse. Lack of job security, impossible standards of production, and extreme

heat conditions that prompt Amazon to have paramedics waiting outside the warehouse….these are

only some of the issues that workers face working behind the scenes for the world’s largest e-

commerce marketplace. This situation begs the question, why would anyone choose to make such

an exchange. The answer is that no one actually chooses to make such an exchange. Soper tells us,

“They [Amazon] can do that because there aren't any jobs in the area” (2). And no one knows this

truth better than Amazon.

Amazon specifically goes out of its ways to locate warehouses in rural areas where jobs are

scarce and “eager applicants” are easy to be found “in the swollen ranks of the unemployed”, even

for temporary work lacking basic safety guidelines, ethical codes, or even a shred of dignity (Soper

3). In short, Amazon targets areas where there are many “buyers” (workers), but not enough sellers.

By targeting these areas, Amazon is essentially coercing workers to engage in an exchange that is not

mutually beneficial, and will likely result in the worker being overworked and injured, all at the

expense of accumulating more profit and capital for Amazon

The coercion does not stop at recruitment alone; it is integrated into the workers’ daily

working routine. Through a point-based disciplinary system, Amazon is able to continuously

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threaten and blackmail workers with the possibility of losing their jobs for infractions that range

from missing work to not being able to recuperate fast enough after suffering an injury caused by

Amazon’s very own disregard for the safety of its workers (Soper). If these actions do not count as

bullying, intimidating, and ultimately coercing, then what does?

The final proposition is that power is dispersed in a free market. For Friedman, it was very

important that economic arrangements remained separate from political power. In Friedman’s eyes,

a free market was enough to maintain fair exchange that “gives people what they want” (15). The

government, on the other hand, was encouraged not to interfere with the market, except to

“determin[e] the ‘rules of the game’ and as an umpire to interpret and enforce the rules decided on”

(15). In essence, the existence of a market was precisely for the benefit of “minimiz[ing] the extent

to which government need participate directly in the game” (15). In this way, Friedman could

guarantee that political power could remain decentralized as “economic power…[would] serve as a

check and counter to political power” (16).

Nearly a half-century after Capitalism and Freedom’s publication, it is ironically not political

power that is the problem, but economic power. Friedman was so focused on economic strength

being a check to political power that he didn’t give as much thought to the worthiness of political

strength being a check to economic power. Instead of “a monarch, a dictator, an oligarchy, or a

momentary majority”, it is now the “many millionaires in one economy”—the power elite— that

holds the “power to coerce” and make key decisions for mass society (Gilbert & Friedman 15-16).

As the controllers of the market system, the power elite’s position is so significant that even

the government (i.e. politicians) must take in the businessman’s position for any decisions made. In

fact, the government’s job is essentially a juggle between two sides: to compel businessman to

continue to invest in the market, while making sure that conditions are still fair for general society

(Gilbert). All things considered, it is apparent that power is not dispersed in the free market. Rather,
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if one holds enough economic power, they can be sure to have political power in their back pocket

as well.

At this point, I conclude the discussion on Friedman’s first claim, which states that

capitalism maximizes economic freedoms. To be sure, capitalism does maximize economic

freedoms; it just doesn’t do so for everyone. Rather, it is the people with the most resources or

capitalists who gain the most economic freedom and power from this economic system. They are the

only ones in this society who is able to engage in an exchange, voluntarily and by choice. If a trade is to

be made, the capitalist is guaranteed to have made a gain. If no trade is to be made, the capitalist can

still walk away, having lost nothing and gaining the opportunity for leisure.

Despite making this conclusion, I move forward to analyze Friedman’s ultimate claim that

capitalism is ideally suited for the promotion of democracy. If anything, we can observe what

Friedman’s ideal democracy looks like. To rehash, Friedman finishes his first claim with an emphasis

on the free market. It is primarily because of this free market that the economy can disperse power

and prevent the concentration of power, cementing capitalism as the economic system that best

promotes democracy (Chibber, Feb. 7). In Friedman’s democracy, four propositions must hold true

in order to best promote political freedom: a) that individual rights disperse power, b) that the

democratic state responds to numbers, c) that interest groups aggregate number, and d) that all

interest groups have an equal chance at success. I move forward to explain how each of these four

political freedoms does not hold true in a democracy such as the United States.

The first proposition that Friedman highlights for political freedom is that individual rights

disperse power. While this ideal is at the foundation of our democracy, it is simply not true. Statistics

show that the United States has the lowest democratic participation with only 53-57% of the

population consistently participating in national elections (the number is much lower for local

elections) (Chibber, Feb. 7). If this news isn’t bad enough, national election turnout is highly skewed
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by class; participation goes down with income level (Chibber, Feb. 7). This pattern holds true for

nearly all political activities; political participation increases with the socioeconomic status of an

individual, with the one exception being attending a protest (Schlozman, Verba, & Brady). Perhaps,

more importantly, the affluent are also especially likely to contribute generously to political

campaigns, which contributes to the skewing of the dispersal and power of individual rights

(Schlozman, Verba, & Brady).

What this dispropriate number of political participation shows is that while all individual may

have rights, many do not utilize or even begin to understand how to utilize this power. The poor

may not have the knowledge or resources to understand the weight of their voice. Even if they did,

they are likely to agree with the majority of the population who have little faith in the government’s

openness to people’s preferences (65-80% of the population think the government favors the rich)

(Chibber, Feb. 7). Mass society may not be wrong, seeing as the affluent are more able to donate to

politicians’ campaigns, donations that likely have unspoken conditions attached to it.

The second political proposition for political freedom is that the democratic state responds

to numbers. If we take what we have learned from exploring the first proposition (political

participation is highly skewed toward the rich), logically, this means that what the democratic state

responds to is an overrepresentation of the affluent’s input and underrepresentation of the poor’s

input (Schlozman, Verba, & Brady). Even more concerning is the fact that even if the voices of the

democratic state were more equally heard, this does not necessarily mean that the state will respond

to those voices.

In his work Affluence and Influence, scholar Martin Gilens finds a correlation between

individuals with increasing socioeconomic status and the ability to influence policy changes. Even

though it is shown that the middle-class preferences are the median, policy changes still mostly

reflect that of the affluent. As expected, the influence of the affluent's political preferences on policy
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changes is even more influential when middle-class preferences align more closely with that of the

affluent. However, what is surprising and concerning is that even when middle-class preferences are

more closely aligned with the poor, their influence on policy changes are still of little threat.

What this analysis shows is that the democratic state does respond to numbers, but this

number is related to wealth, not people. As individuals’ income level increases, the government

seems to hear and respond better to their input (Chibber, Feb. 7). In the end, what can be

concluded is that the government has no interest in what individuals say, except if one is rich or

when one agrees with the rich (Chibber, Feb. 7).

The third political proposition for political freedom is that interest groups aggregate

numbers. Authors Schlozman, Verba and Brady show, once again, that the affluent and well

educated are overrepresented through organized interested groups while the poor and less educated

continue to be underrepresented. In the Washington Representative Study, the authors found that

only 12 percent of interest groups were membership organizations, and less than 5% were public

interest groups. Business interests were overwhelmingly represented at more than 75%. Meanwhile,

the interests of those less than affluent were disappointing; the poor had little to no representation,

and even those in the middle-class were underrepresented. These results exhibit yet again that the

democratic state responds to wealth and capital over numbers.

The final proposition for political freedom is that all interests groups have an equal chance at

success, which is explicitly not true. The affluent and well educated are more apt to have successful

interest groups because they are better able to mobilize organizations with all the resources they

have. Schlozman, Verba, and Brady writes that “Not only are the affluent and well educated able to

afford the financial costs of organizational support but they are also in a better position to command

the skills, acquire the information, cultivate the media, and use the connections that are helpful in

getting an organization off the ground or keep it going” (316). In short, the affluent and well
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educated have more resources in the form of economic, social and cultural capital to ensure that

their voices are not only heard but are the loudest. In such a competition, how can there be an equal

chance at success?

We began our investigation into Friedman's claim because the knowledge that “employers

have fought tooth-and-nail against the establishment or extension of political democracy” put a well-

sized dent in Friedman’s argument that capitalism promotes democracy. Yet our study’s conclusion

shows that the answer was close all along. These same employers, or capitalists, are now in charge of

the very same “democracy” that they once fought so hard against.

In theory, democracies are meant to represent each and every individual in the state, but in

actuality, the modern democracy (especially that of the United States) is representative of only the

capitalists. Capitalists have created an economic system that gives them the greatest benefit (i.e.

more wealth) when engaging in exchanges, and a political system that allows them to pull the strings

behind the scenes. By constructing a system that keeps the poor and even the middle-class relatively

out of politics, the modern democracy is essentially a reconstruction of Athens’ direct democracy,

whereby property-owners were the only members of the state seen fit to participate in government

affairs and determine everyone’s livelihood.

In the end, what can be seen is that Friedman’s claims are true. Capitalism does maximize

economic freedoms and promote democracy….but only for capitalists and capitalists alone.

Ordinary folks have no place in Friedman’s arguments.

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Works Cited

Beckert, Sven, and Seth Rockman. Slavery's Capitalism: a New History of American Economic Development.

University of Pennsylvania Press, 2018.

Chibber, Vivek. “Course Lecture - Feb. 5 .” Capitalism and Democracy, 5 Feb. 2019, New York,

Stern School of Business.

Chibber, Vivek. “Course Lecture - Feb. 7 .” Capitalism and Democracy, 7 Feb. 2019, New York,

Stern School of Business.

Friedman, Milton. “The relation between economic freedom and political freedom”, Capitalism and

Freedom, Chapter 1, pp. 7-16.

Gilbert, Dennis. The American Class Structure in an Age of Growing Inequality, (Sage 2015), Chapter 8,

“Elites, the Capitalist Class and Political Power”, pp. 163-196.

Gilens, Martin. Affluence and Influence, (Princeton, 2012), Chapter 3, The Preference/Policy Link”, pp.

70-96.

Schlozman, Kay, Sidney Verba and Henry Brady, The Unheavenly Chorus, (Princeton, 2012), Chapter

5, “Does Unequal Voice Matter?”, and Chapter 11, “Who Sings in the Unheavenly Chorus”,

pp. 117-146 and 312-346.

Soper, Spencer. “Inside Amazon’s Warehouse”, The Call, September 18, 2011.