A Free Market Manifesto That Changed the World, Reconsidered

Sept. 13 is the 50th anniversary of a seminal moment in the world of business: the publication of Milton Friedman’s essay in The New York Times Magazine entitled ‘The Social Responsibility of Business Is to Increase Its Profits.’ … You can read the original essay in its entirety here. Below are quotations from Friedman’s landmark essay, along with the experts’ responses.

Oren Cass: Friedman’s logical suppositions build carefully atop one another, but at their base lies a sloppily unsupported claim: that what business owners generally want is to make as much money as possible. If this were true, the rest might well follow. But it is empirically false. Sole proprietors and closely held firms often operate in ways considerate of their workers, communities and customers that are far from profit-maximizing.

What of the dispersed and anonymous shareholders to whom Friedman is so attentive? Their preferences are notoriously difficult to discern. That does not argue for ‘make as much money as possible’ as the default instruction to managers. Why not ‘operate as you believe a responsible member of the community would’? We could at least as easily say that is what owners generally want.

The best defense of Friedman’s profits-über-alles default is that shareholders of a widely held, publicly traded company are not like personally engaged business owners. Distant, diffuse and often hidden behind layers of legal fiction, they are not accountable, or even known, to the communities in which their companies operate. They often do not know, or care to know, how those companies operate.

If that is Friedman’s argument, it is less celebration of the free market’s power than brutal indictment. Logic does not lead from there toward his doctrine of shareholder primacy. Rather, if such ownership is prevalent, the conclusion should be that stronger legal constraints may be necessary to channel the pursuit of profit toward delivering widespread prosperity.