Chapter 1- Relation Between Economic Freedom and Political Freedom

There is an intimate connection between economic and political freedom. Freedom in how one arranges his economic life is freedom per se, but it is also indispensable for achieving political freedom.  

Economic freedom seems to bother intellectuals, who regard with contempt the material aspects of life and regard their values as more deserving of attention. But clearly, economic freedom is an important part of total freedom.

Historically, political freedom has not really been achieved outside of a free-market system arranging the bulk of economic activity.

Capitalism is a necessary condition for political freedom, but not a sufficient condition. What then are the logical links between economic and political freedom?

Liberals take the freedom of the individual as the ultimate goal in judging social arrangements. What the individual does with his freedom is his concern and liberals leave the ethical concerns alone. But the important concern is how free individuals interact in society.  

The basic problem of social organization is how to coordinate the economic activities of large numbers of people. There is an extensive division of labor and specialization of function required in order to make use of available resources. The challenge is to reconcile individual freedom with the interdependence in society. There are two broad categories of coordinating economic activities: central direction, using coercion, and the marketplace, using voluntary cooperation.

The possibility of coordination through voluntary cooperation rests on the elementary proposition that both parties to a transaction benefit from it, provided the transaction is voluntary and informed on both sides.

Exchange can therefore bring about coordination without coercion. This system is called the free market, or capitalism.

Simple free-market systems have existed for a long time: households producing one type of good and exchanging it for others on mutually acceptable terms. Ramping up the scale allows for increased production and money is introduced to facilitate exchange.

The necessary basis for this is a) the enterprises are private, and b) individuals are free to enter or not into any particular exchange.

So long as effective freedom of exchange is maintained, the central feature of the market system is that it prevents one person from interfering with another in respect to most of his activities. The consumer is protected from coercion because of the presence of other sellers, and producers are protected from coercion because of the presence of other consumers.
The market does this impersonally.
In fact, one of the objections to a free market is that it gives people what they want, rather than what some particular group thinks they ought to want.

A free market doesn’t eliminate the need for government. Government is essential for determining and enforcing the rules. What it does do is greatly reduce the range of issues to be decided through political means, minimizing the extent to which government needs to participate. Political channels will enforce conformity, the market will permit wide diversity.

Political freedom means the absence of coercion by one’s fellow man, and the fundamental threat to freedom is the power to coerce. The preservation of freedom then requires the elimination of the concentration of power to the fullest extent possible. Capitalism does this by removing the organization of economic activity from the control of political authority. The market eliminates this source of coercive power.

It is when economic power is kept in separate hands than political power, it can act as a check on political power.