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IPFS News Link • Entrepreneurship

The Milei Doctrine

•, Patrick Carroll

On September 13, 1970, the New York Times published an article by Milton Friedman that would become one of the most famous—and controversial—articles in all of economics. The piece was titled, "A Friedman doctrine— The Social Responsibility of Business Is to Increase Its Profits."

According to the now-famous Friedman doctrine, the sole job of a business is to make profits for its shareholders. It has no other "social responsibilities," such as caring for the poor or protecting the environment. "Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades," Friedman wrote.

The Friedman Doctrine

The crux of Friedman's argument is that he who pays the piper ought to pick the tune. If the shareholders own the company, then they should get to decide how it operates, and if they are solely interested in profit (either out of avarice or because they want to spend the money on causes they personally care about), then everything the company does should be oriented toward making as much profit as possible. In short, shareholder primacy should be the rule.

"In a free?enterprise, private?property system, a corporate executive is an employe of the owners of the business," Friedman wrote. "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."

"In either case," he continues, "the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation…and his primary responsibility is to them."

To be sure, Friedman is not saying we shouldn't care about the poor or the environment—a common misinterpretation of the Friedman doctrine. Rather, he's making the subtler point that it is not the place of a business executive to be spending what is effectively someone else's money on causes he personally thinks are important. "The stockholders or the customers or the employes could separately spend their own money on the particular action if they wished to do so," Friedman notes.