Edward Quince's Wisdom Bites: Friedman Conversations Pt. 4

Conversation 4: The Role of the State and Fiscal Policy

Topic: The proper limits of government intervention and the moral implications of public finance.

Friedman Doctrine (Milton Friedman):
The State’s proper function is to preserve the rules of the game—enforcing property rights, contracts, and competition—nothing more. Beyond that, intervention corrupts incentives and dilutes accountability. Fiscal discipline is the foundation of liberty. When governments spend recklessly, the central bank becomes captive to fiscal dominance, keeping rates artificially low to accommodate political excess. The cycle is predictable: spend now, tax later, inflate always. In the end, high deficits force high rates, distorting capital markets and punishing those who played by the rules.

Calculus of Value (CV):
Public finance operates like gravity—it shapes every private decision. A rising tide of government debt lifts no boats if it distorts the cost of capital or misallocates savings. Today’s higher interest rates may be a necessary correction from the “distortionary” era of near-zero rates, which bred complacency and speculative excess. Fiscal policy, often treated as background noise, is in truth a dominant force influencing the equilibrium between saving and investment—the elusive neutral rate, r⁎. The real debate is not whether fiscal policy drives inflation, but whether it can ever again be neutral in an economy this large and leveraged.

Centesimus Annus (Pope John Paul II):
The State has a rightful and essential duty: to serve the common good, protect the weak, and ensure that markets remain ordered toward human flourishing. Yet prudence is the measure of justice. Persistent deficits represent not generosity, but negligence. Alexander Hamilton’s counsel still stands—“the creation of public debt should always be accompanied by the means of extinguishment.” To mortgage the future for present comfort is to betray both intergenerational solidarity and the moral law. Fiscal irresponsibility, like moral irresponsibility, erodes the trust upon which civilization depends.

Rerum Novarum (Pope Leo XIII):
Politics without virtue becomes manipulation, and economics without justice becomes exploitation. The State must not merely referee; it must safeguard the human person. This includes ensuring that policy—fiscal or otherwise—serves human dignity and social harmony, not the ambitions of factions. The pursuit of the common good requires international cooperation and moral clarity: where one nation’s debt becomes another’s burden, solidarity becomes both an ethical and economic necessity.

Reflection:
Friedman fears a State too large to fail; Leo and John Paul fear a State too small to care. Between them lies the enduring tension of liberty and responsibility. Debt, like sin, accumulates quietly until it reshapes what is possible. The moral question, then, is not how much government we can afford—but how much virtue our economy requires to govern itself.