Milton Friedman: Master of Disaster?


(Spectrumbot) #1

When I suggest that the primary cause of our current economic difficulties is our frequent failure to integrate in theory and practice what Adam Smith (the eighteenth century so-called “father” of capitalism) meant by sympathy and self-interest, I have in mind things like these influential paragraphs that economics Nobel Prize winner Milton Friedman published forty years ago:1

The view has been gaining widespread acceptance that corporate officials and labor leaders have a 'social responsibility' that goes beyond serving the interest of their stockholders or their members. This view shows a fundamental misconception of the character and nature of a free economy. In such an economy, 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 or fraud. Similarly, the 'social responsibility' of labor leaders is to serve the interests of the members of their unions. It is the responsibility of the rest of us to establish a framework of law such that an individual in pursuing his own interest is, to quote Adam Smith again, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.

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. This is a fundamentally subversive doctrine.2

In these words, Friedman shifted from economic analysis to ethical advocacy in exhortations that impress me as having been disastrous for the whole world. His often repeated claim, that it is unethical—downright subversive—for a corporation or labor union to accept any social responsibility other than to benefit its shareholders or members has hurt us all. This glorification of self-interest does not merely trump sympathy; it banishes it from the table.

Friedman recognized that “the invisible hand” that is supposed to guide free markets for everyone’s benefit needs our help in a “framework of law” that establishes the “rules of the game,” and he instructs everyone to stay within its boundaries. But in these lines he said nothing about the moral duty of corporations and labor unions voluntarily to restrain themselves from harming people and damaging the environment. Elsewhere, he explicitly denied that a corporate executive should “make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law.”3

One reservation about this kind of thinking is that it encourages organizations like corporations and labor unions to rely too heavily on external authorities. We admire this in very young children but loathe it in adults because we believe that having an inward moral compass is part of what it means to be grown up. What is required of us should no longer be inscribed in some external law but transcribed in our own thinking and feeling (Heb. 8:1–13 NRSV). If we expect this of real persons, why shouldn’t we also require it of the fictitious ones we create in order to do business?

A second reservation is that this kind of thinking errs in trying to boil down all moral obligations to one ethical consideration. In Friedman’s case, this is freedom, all other ethical norms deriving from and being subordinate to it. For others, it is the common good, life’s sanctity, pleasure, what’s natural, tradition, and so forth. My objection is not to any one of these, or to any other one that we might mention, but to thinking that anything short of loving God with one’s whole being and one’s neighbor as oneself, can do the job. For example, to foster “liberty and justice for all,” as does the United States Pledge of Allegiance, is better than championing either one of these alone.

This is because we are finite and fallible, always tempted to see only part of the picture and to gaze upon it with our own biases. "The heart is devious above all else; it is perverse—who can understand it?" (Jer. 17:9 NRSV). Didn’t Darwin, Marx, and Freud say something similar? Because sin always tempts, we need checks and balances in ethical theory, as everywhere else.

A third reservation is that this kind of thinking rests upon an inadequate understanding of human nature. David Brooks said as much in his September 11, 2008, New York Times column. “Recent Republican Party doctrine has emphasized the power of the individual,” he wrote as one of the party’s most influential insiders, “but underestimates the importance of connections, relationships, institutions and social filaments that organize personal choices and make individuals what they are.”4 In my view, no one is more responsible for this than Milton Friedman.

Paul of Tarsus in the New Testament had something like this in mind when he described Christians as mutually dependent organs in a single body. “Indeed, the body does not consist of one member but of many.…If one member suffers, all suffer together with it; if one member is honored, all rejoice together with it” (1 Cor. 12:14 and 26 NRSV). This is also true of society in general. As Brooks stated, “we are intensely social creatures.” One way to summarize this is to say that our relationships are constitutive, not contingent.

This is why it is not helpful to ask, as Friedman did, whether corporations and unions should enrich their stockholders and members or enhance their communities and natural surroundings. A good answer is “both.” An even better one is, “The premise of the question is itself questionable.”

Keeping in mind that Adam Smith understood that “we are intensely social creatures” is an early step in our journey toward integrating what he said about sympathy and self-interest. We will continue this trek in our next column.

Notes and References

1. This column is the second in a cluster of reflections on our current economic crisis. The first was posted on December 11, 2008. 2. Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), 133, 134. 3. Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” New York Times Magazine, in W. Michael Hoffman and Robert E. Frederick, eds. Business Ethics: Readings and Cases in Corporate Morality, 3d ed. (New York: McGraw-Hill, 1995), 138. 4. David Brooks, “The Social Animal,” New York Times, Sept. 11, 2008.

David Larson teaches in the School of Religion at Loma Linda University.


This is a companion discussion topic for the original entry at http://spectrummagazine.org/node/1312