Milton Friedman (1912-2006) made one of the most provocative arguments on the role of business firms in society almost 50 years ago. In a now-famous essay published on 13 September 1970 in The New York Times Magazine, Professor Friedman (pictured below) argued that a firm’s sole purpose is to maximize its profits. His short (3000-word) essay expands on a brief digression he made in his 1962 book Capitalism and Freedom (Friedman, 1962, pp. 133-136), where the late economist wrote: “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.”
Is Professor Friedman’s “Smithian” view of business ethics correct? In light of such recent events as the introduction by Senator Elizabeth Warren of “The Accountable Capitalism Act” (S. 3348) as well as the recent amendment (SB826) to California’s General Corporation Law requiring women to be included on companies’ boards of directors, today is an ideal moment to revisit Friedman’s classic essay and explore anew the strengths and weaknesses of his arguments. Although I have been highly critical of Professor Friedman’s normative and empirical assertions in Capitalism and Freedom in some of my previous work, I will review Friedman’s 1970 essay and defend his profit-maximization theory of business ethics in my upcoming posts.