In one part of his argument that the State should coerce people into supplying a guaranteed minimum income, Matt Zwolinski cites an argument of Milton Friedman. However, Robert Sugman has persuasively refuted Friedman’s argument both theoretically and empirically in an article published in 1982 in The Economic Journal, June 1982, pp. 341-350. This paper is technical. It is in an economics journal while Zwolinski is a philosopher, but if he’s going to cite Friedman’s argument, then he has to be prepared to rebut those who have criticized Friedman’s argument on economic grounds.
Friedman wrote
“It can be argued that private charity is insufficient because the benefits from it accrue to people other than those who make the gifts… We might all of us be willing to contribute to the relief of poverty, provided everyone else did. We might not be willing to contribute the same amount without such assurance.”
“Friedman says that he accepts this argument ‘as justifying governmental action to alleviate poverty’.”
Sugman points out that this argument relies upon three assumptions that are unproven and need not hold. (Actually, it relies on even more assumptions.) His critique is important because Friedman’s argument is frequently applied in other cases, such as national defense, to justify the State’s coercions:
“Economists will be familiar with this kind of argument. Someone takes as a premise that a particular activity is the subject of altruistic concern by individuals; he shows that, if matters are left to unco-ordinated private philanthropy, a free-rider problem will arise; and then he claims that this problem can be solved by some kind of intervention by government. This strategy has been used to justify many kinds of intervention, including compulsory
transfers of income through the tax system (Hochman and Rodgers, 1969), public policy to stimulate saving and investment (Marglin, 1963; Sen, 1967) and the subsidisation or public provision of health care (Arrow, 1963; Lindsay, 1969; Culyer, 1976).”
The three assumptions that Friedman silently accepted and that all such arguments accept but that need not hold are as follows. Friedman assumes that the charitable giving is a public good, which means it’s an action that gives all citizens utility. Second, every person only maximizes his own utility. Third, everyone takes everyone else’s contributions as a given. Individuals need not conform to these assumptions. A person may give to a charity for personal reasons that bring him utility and these reasons need not be shared by others. A person may give more to a charity than a utility-maximizing calculation suggests, e.g., because he believes that right action is what leads to the greatest good. A person need not take everyone else’s contributions as given. He might, for example, believe “that if he gives a certain minimum sum of money, everyone else will do the same, but that if he gives less, everyone else will give nothing.”
Friedman actually posited a public good theory of philanthropy, and then used that theory to argue for the undersupply of private charity and government coercion to rectify it. (There are other powerful arguments that Sugman ignores as to why government coercion fails such as the inability of government to identify undersupply, or to overidentify it to get votes, or to misidentify it because of interest group pressures.) The main body of Sugman’s paper shows that Friedman’s public good theory of philanthropy, as elaborated by Gary Becker, has insuperable problems.
He concludes “I have considered a well-established theory of philanthropic behaviour, which starts from the assumption that the total amount of a charitable activity is an argument in the utility functions of its donors and which then assumes that each donor maximises his utility taking the actions of the other donors as given. This theory is often used as the starting-point for empirical research into philanthropic behaviour. It is also implicitly assumed by those economists who argue that, because of the free-rider problem, private philanthropy will be unable to supply charitable activities in economically efficient quantities. I have shown that this theory has implications that are paradoxical, implausible and inconsistent with empirical evidence.”
Charitable giving doesn’t behave according to the Friedman-Becker model. Charities often lobby the government for aid to their causes, but the theory suggests that if they succeed in their quest they’d lose private contributions to the extent that government funds were received. The theory also suggests that if one person increases his giving to a charity that others will offset it by reductions of their giving. This kind of behavior is not confirmed empirically. If the Friedman-Becker theory were correct, there would be no large charities.
10:11 am on June 18, 2014
