Financial Markets and Economic Freedom - Free to Choose Conference Proceedings - Dallas Fed

he central point of Milton and Rose Friedman's best seller Free to Choose is that markets leave freedom of choice to individuals, while governments negate it. While this basic argument is clearly right, it is often objected to on grounds that it holds only for the well-offs. For many poor people around the world, the freedom markets grant seems to be more theoretical than real. Consider, for instance, Sufiya Begum, a poor Bangladeshi stool maker. Theoretically, she is free to choose what to produce and for whom to produce. But she lacks the twenty-two cents necessary to buy the raw material for the stools she makes. Not having that money and lacking any opportunity to borrow it, Sufiya has no other choice but to accept the terms offered by the only middleman in town. He lends her the raw material but requires her to sell the stools back to him. Of course, he sets the price. Thus, lacking the initial resources, Sufiya is de facto enslaved to the middleman, who pays her only two cents for a hard day's labor. One could quickly dismiss this argument on the basis of its assumption. Why is there only one middleman in town? Markets provide freedom of choice only when there is competition. Without competition, there is no freedom. Mil-ton and Rose would certainly agree with that. Does this imply, however, that Milton and Rose's argument in favor of markets depends crucially on the feasibility of competitive markets? If so, its power might be significantly reduced. While Milton and Rose probably do not believe in the existence of natural monopolies, many economists do, especially when we are talking about poor developing countries. And regardless of the theoretical arguments, there are the facts. In Jobra, Sufiya Begum's village, there was only one middleman. So what freedom did markets offer to her? We think instead that the major obstacle to Sufiya Begum's freedom of choice is not the existence of just one middleman in town but the lack of access T