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Milton Friedman on “Social Responsibility”

A couple days ago I described how Amazon.com has come under attack from liberals at the Seattle Times and elsewhere for not spending corporate money on philanthropy. I ended the post by expressing the opinion that “There is no real moral justification for corporate executives giving away their stockholders’ money to third party.”

Today it is more or less conventional to talk about big corporations having a “social responsibility” to do all sorts of things, like philanthropy, that don’t put money in their stockholders’ pockets. Obviously many executives would argue that they are behaving in a perfectly moral way when they spend their stockholders’ money on charities and causes. Many boast about it in their advertisements and their annual reports.

To argue against such a well-entrenched (but wrong-headed) idea, I’d like to defer to someone far smarter than myself.
Milton Friedman’s definition of social responsibility was published in 1970, under the title “The social responsibility of business is to increase its profits.” Friedman was Thomas Sowell’s mentor at the University of Chicago, and wrote the seminal Capitalism and Freedom.

Here are some key quotes from his 1970 article:

“The discussions of the ‘social responsibili­ties of business’ are notable for their analytical looseness and lack of rigor. What does it mean to say that ‘business’ has responsibilities? Only people can have responsibilities.”

“In a free-enterprise, private-property sys­tem, a corporate executive is an employee of the owners of the business. He has direct re­sponsibility to his employers. That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”

“…the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them.”

“The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct ‘social responsibility,’ rather than serving as an agent of the stockholders or the customers or the employees, only if he spends the money in a different way than they would have spent it.”

“This is the basic reason why the doctrine of ‘social responsibility’ involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce re­sources to alternative uses.”

Well said, Dr. Friedman