Free to choose presentation.ppt

Milton Friedman’s 4 ways to spend money Category I in the table refers to your spending your own money on yourself. You shop in a supermarket, for example. You clearly have a strong incentive both to economize and to get as much value as you can for each dollar you do spend. Category II refers to your spending your own money on someone else. You shop for Christmas or birthday presents. You have the same incentive to economize as in Category I but not the same incentive to get full value for your money, at least as judged by the tastes of the recipient. You will, of course, want to get something the recipient will like – provided that it also makes the right impression and does not take too much time and effort. If, indeed, your main objective were to enable the recipient to get as much value as possible per dollar, you would give him cash, converting your Category II spending to Category I spending by him. Category III refers to your spending someone else’s money on yourself – lunching on an expense account, for instance. You have no strong incentive to keep down the cost of the lunch, but you do have a strong incentive to get your money’s worth. Category IV refers to your spending someone else’s money on still another person. You are paying for someone else’s lunch out of an expense account. You have little incentive either to economize or to try to get your guest the lunch that he will value most highly. However, if you are having lunch with him, so that the lunch is a mixture of Category III and Category IV, you do have a strong incentive to satisfy your own tastes at the sacrifice of his, if necessary. First of all it should be stressed that this classification is rather psychological than praxeological. If for example we have a very moral bureaucrat who is willing to economize our money and to maximize our satisfaction than according to Friedman we have no reason to be opposed against government intervention and the only thing we need is to find such moral