"Promarket" Idiot: It Is Time to Move on From Friedman’s View of the Corporation

The anti-CSR position defended by Friedman would be acceptable only under conditions that have never been met by any real-world economy. Furthermore, the notion of the firm as a nexus of contracts is theoretically groundless and legally contradictory.

Editor’s note: To mark the 50-year anniversary of Milton Friedman’s influential NYT piece on the social responsibility of business, we are launching a series of articles on the shareholder-stakeholder debate. Read previous installments here.

In his seminal book Capitalism and Freedom (1962), Milton Friedman considered corporate social responsibility a serious threat to the survival of the capitalist system itself. “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible,” he wrote.

The argument was subsequently reiterated in Friedman’s famous 1970 piece in the NYT, under the suggestive headline The Social Responsibility of Business is to Increase Its Profits. There, he wrote:

“The short-sightedness is also exemplified in speeches by businessmen on social responsibility … Here, as with price and wage controls, businessmen seem to me to reveal a suicidal impulse … There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception and fraud. Corporations do not have responsibilities. Only executives do and their responsibility as agents of their owners is to maximize returns.”

The argument is seemingly persuasive, but does it stand? I limit myself to focusing on two specific points. First, the anti-CSR position defended by Friedman would be acceptable if all markets were perfectly competitive (it is not sufficient to say competitive); if income distribution was equitable in the minimal sense, whereby everyone is permitted to play the market game; and if no endogenous changes in the preferences of agents occur.

As economic textbooks inform us, under such conditions—none of which has ever been met by any real-world economy—the economy will reach a competitive equilibrium, where the notion of corporate responsibility would make no sense at all. However, in an economy of this kind, no profits are made, as Leon Walras first demonstrated back in 1874. So, in order to substantiate his thesis on logical grounds, Friedman has to assume conditions under which, if met, businesses would make no profits at all. A really disturbing paradox indeed!

[There is no paradox. Walras referred to economic profits, not accounting ones! Moreover, profit maximizing behavior exists regardless, and is what underlies that zero econ profit outcome.]

Rest of law-obsessed horseshit here: https://promarket.org/2020/09/17/it-is-time-to-move-on-from-friedmans-view-of-the-corporation/

"Promarket" Idiot: It Is Time to Move on From Friedman’s View of the Corporation

"Promarket" Idiot: It Is Time to Move on From Friedman’s View of the Corporation

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