Fundamentally, there are only two ways of coordinating the economic activities of millions. One is central direction involving the use of coercion - the technique of the army and of the modern totalitarian state. The other is voluntary cooperation of individuals - the technique of the marketplace.
Interpretation
The quote contrasts two methods of organizing economic activities: coercion through central authority and voluntary cooperation in a free market.
Milton Friedman highlights the fundamental distinction between two approaches to managing the economy: one that relies on centralized control and coercion typical of authoritarian regimes, and another that fosters voluntary cooperation among individuals, as seen in a free market. This reflects Friedman's belief in the superiority of market-driven economies, where individual freedoms and choices lead to better outcomes than those imposed by a centralized authority.
In practice
In a debate about economic policy, one could reference this quote to argue for free-market principles.
The economic miracle that has been the United States was not produced by socialized enterprises, by government-unon-industry cartels or by centralized economic planning. It was produced by private enterprises in a profit-and-loss system. And losses were at least as important in weeding out failures, as profits in fostering successes. Let government succor failures, and we shall be headed for stagnation and decline.
Universities exist to transmit knowledge and understanding of ideas and values to students not to provide entertainment for spectators or employment for athletes.
There is no place for government to prohibit consumers from buying products the effect of which will be to harm themselves.
There is one and only one social responsibility of business - to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.
The great danger to the consumer is the monopoly -whether private or governmental. His most effective protection is free competition at home and free trade throughout the world. The consumer is protected from being exploited by one seller by the existence of another seller from whom he can buy and who is eager to sell to him. Alternative sources of supply protect the consumer far more effectively than all the Ralph Naders of the world.
The strongest argument for free enterprise is that it prevents anybody from having too much power. Whether that person is a government official, a trade union official, or a business executive. If forces them to put up or shut up. They either have to deliver the goods, produce something that people are willing to pay for, are willing to buy, or else they have to go into a different business.
Economists love to talk about incentives, but the bottom line is that people hate being controlled or manipulated, even when done through voluntary institutions. This is one of the most important tensions in capitalism.
Beneath the surface, unnoticed by many, an even deeper force was at work—the rise of creativity as a fundamental economic driver, and the rise of a new social class, the Creative Class.
Conventional economic theory... counts the depletion of resources as the accumulation of wealth.
The rich do not have to invest enough in the poorest countries to make them rich; they need to invest enough so that these countries can get their foot on the economic ladder . . . Economic development works. It can be successful. It tends to build on itself. But it must get started.
One way to measure the size of a company, industry, or economy is to determine its output. But a better way is to determine its added value - namely, the difference between the value of its outputs, that is, the goods and services it produces, and the costs of its inputs, such as the raw materials and energy it consumes.
Can we please agree that in the real world, corporations exist for one purpose and one purpose only - to make as much money as possible, which means cutting costs as much as possible?
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