Free Markets for Free Men – in Theory

In 1974 the free-market economist Milton Friedman[1] was asked to speak on the subject “Free Markets for Free Men”. The topic, having been chosen for him by the chairman of the business leaders before whom he spoke, implied he might assume rather than prove that a relationship exists between the two forms of freedom. Friedman chose to interpret the title as a question “Do free markets make free men, or do free men make the free markets?”.

Friedman contended that free men do not make free markets, but rather the opposite, that free markets make free men (free people, as we would say now-a-days). For example, Friedman considered, “the freedom to decide how to spend your money, what to do with your time, where to work, what job to take, where to live. Those material aspects of freedom are all associated with free markets”. (Friedman 1974: 5)[1]

Let us, by way of a thought experiment, consider how a free market in “what job to take” might work. To keep the analysis simple, and in the spirit of economic enquiry, we will assume two job roles, and generalise from there. We begin with considering the market for street-sweepers and bankers.

In a free market, everyone is free to take whichever job they wish, so Sam, a street-sweeper, noticing that bankers are better paid than street-sweepers, decides to become a banker. The supply of street-sweepers will decline marginally, causing the wages which must be offered to street-sweepers to rise in order to attract more people into that role. Similarly, as the supply of bankers increases, the wages paid to bankers will decline marginally, causing banking to become less attractive. As Sam and his friends trade employment in the free market, this process will continue and wages will adjust until equilibrium; at which point it is no longer worthwhile for street-sweepers to become bankers (or vice versa).

This is not to say that bankers and street sweepers will necessarily be paid the same – perhaps bankers will be paid a little more as street-sweeping at least gets one out in the fresh air. Or perhaps bankers will be paid a little less, on the grounds that, at the least, they don’t have to work in all weathers. Or perhaps, Sam might chose to bank on wet days and street-sweep on dry days. This would be one of the features of a free market. Ultimately, in a free jobs market, a typical new entrant will be indifferent whether to go into sweeping, banking or a combination of the two.

It might, of course, be argued we need more street-sweepers than bankers. However, the relative numbers in each role need not stand in the way of free-markets. Suppose, Jo, a teacher, wishes to go for a job where the number of incumbents is necessarily limited; for example, Prime Minister. In this case, as there is only one person who might take the position, the free market would have to equilibrate supply and demand by, in effect, auctioning the role off to the person prepared to ask the least wage or, if the wage became negative, prepared to pay the most to work in that role.

Of course some people are more skilled at street-sweeping than banking, and some more skilled at teaching than being Prime Minister. However, the market will take care of all such differences, according to the theory of comparative advantage. Ultimately, in equilibrium, no individual will have an incentive to change roles; all would be free to do that which they chose. In such a market, all participants would be indifferent between the terms and conditions of employment of all jobs on offer. Thus the market would be efficient
(assuming away numerous market failures such as imperfect information, externalities, public goods, the tyranny of small decisions
&c.). In this case, Milton Friedman’s theory would be vindicated; the free market would have created freedom.

Now, let’s consider the real world: It seems likely that the market for Prime Ministers is not in equilibrium as there are generally at least three people who desire that role. Likewise, the market for bankers is not in equilibrium as it is clear there are many more people wishing to take such jobs than there are jobs available. This is why interns may work themselves to exhaustion (or beyond) in order even to have a chance of a job as a banker; hardly a sign of a market entrant being indifferent between being a banker or a street-sweeper.

In practice, it would appear there are few in the UK who enjoy free labour markets. We know, for example, that the majority of those living in poverty in the UK are in “working families”. Unless we assume that people have deliberately, or perversely, chosen to live in poverty when they might have lived in affluence, it seems clear that their choice of job is constrained. This is borne out by the fact that the UK has a level of social mobility which is low by international standards.

Although Milton Friedman’s suggestion that, if only we might achieve completely free markets we would all be free, is valid in theory, in practice most of us live in the real world. Naturally, we all hope the business leaders before whom Friedman spoke went away commited to creating, in their workplaces, conditions of employment such that all whom they employed would not change the job they did for any other. However, if rising inequality in the USA and the UK, and the evidence that the USA and UK have very poor social mobility are any indication, there is a way to go. Certainly, we should strive to ensure that those trapped in poverty are just as likely as anyone else to get well paid employment and that all people who are employed are able to live on what they earn.

While we are waiting market-fundamentalism to live up to its publicity, there is no reason why we might not also consider other ways of promoting freedom, for example, social welfare. If Sweden can do it[2], so can we!

Kevin Albertson


1 Friedman, M. (1974) Free Markets for Free Men, Selected Papers, No. 45, Graduate School of Business, University of Chicago. Available at

2 Sanandaji, N. (2012) The surprising ingredients of Swedish success – free markets and social cohesion, IEA Discussion Paper No. 41. Available at

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