Continuing….Friedman states what he declares an elementary proposition about economics: That in a voluntary trade where both parties are informed, each side walks away better off. A model of competitive capitalism revolves around voluntary coordination of economic activities. Unlike socialism, coercion is not needed to allocate societies resources.As an example, albeit a simple one, consider a household that is using its resources, its private property, to create a variety of goods and service. These goods and services are exchanged with other households voluntarily, in mutually beneficial trades. A household satisfies its needs indirectly rather than directly. By doing this, each household can get the most from its available resources, as opposed to using these resources solely to satisfy basic needs. Division of labor and specialization of work results in more productivity, more choices for each household. And this is achieved without coercion.Obviously, as a thought experiment, a model that imagines households trading with each other only goes so far. Technology, businesses, and money lead to substantially more sophistication and output. But the basic idea is the same. When everyone is pursuing what is good for them, in most instances, society benefits. To achieve a market economy, government is necessary. Government can ensure that coercion is not used by one party in a transaction, that contracts are enforced, and that property rights are protected. In addition, government can play a role making sure that monopolies do not develop and that so called “neighborhood affects” are addressed. Neighborhood effects appear to be externalities, which can be positive or negative.
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