Milton Friedman - The Four Ways to Spend Money

In his book Free to Choose, Milton Friedman described four ways to spend money.

1. You spend your own money on yourself.

2. You spend your own money on someone else.

3. You spend someone else's money on yourself.

4. You spend someone else's money on someone else.

Source: Free To Choose Network YouTube channel.

Transcript:

Milton Friedman:

Well you know, you can spend your own money on yourself and when you spend your own money on yourself you’re very careful of what you spend it on and you make sure that you get the most for your dollar.

You can spend your own money on somebody else. You give gifts to other people; you take people out to dinner. And when you spend your own money on somebody else you’re very careful that you don’t spend too much, you try to keep down the amount you spend, but you don’t worry very much about what the other fellow’s getting from it. You don’t pay anything like as much attention to the gifts you buy for other people as to the things you buy for yourselves.

Or you can spend somebody else’s money as when you’re spending the government’s money, I say the government’s money, the taxpayers’ money, which the government has control of. Now you’re spending somebody else’s money, let’s say you’re spending your boss’s money you’re out to lunch on a expense account but you’re spending it on yourselves. You are very careful that you get good things for your money, you try to have a good lunch and pick the right things, but you’re not very much worried about whether you get the cheapest you spend all you want, you’ll be careless.

Now what happens when you spend somebody else’s money on somebody else? You’re a distributor of welfare funds, well you are interested in making your own life as good as you can, and most people have humane instincts and want to do the best they can, but you’re not going to be anything like as careful in spending somebody else’s money on somebody else.

So there are four ways in which you can spend money.

And we have in our book “Free to Choose” a little box which shows this. On one side of that box is your money and somebody else's money. On the top part of that box are two columns: On yourself or somebody else. And that corner box when you spend you money on yourself is when you really get your money's worth. And the rest, the worst of all is the right hand box: when you spend somebody else's money on somebody else.

Interviewer:
And that explains the schools today.

Milton Friedman:

That explains the schools today. You are right. All so called public schools, government schools, people are spending somebody else's money on somebody else. The teacher isn't spending his own money on children. He is spending taxpayers' money on the children. And that goes throughout the system, absolutely!