Happy Milton Friedman Legacy Day!: and, a defense of Friedman’s views on shareholder value

Classic Milton Friedman defending capitalism on Phil Donahue’s show (trust me kids, he was almost as big as Oprah back in the day):

And, since he’s not here to defend himself, I have to defend Friedman against the idea that maximizing shareholder value as the proper role of business is “the dumbest idea in the world.”

For starters, the author bases his case around the idea that Friedman said that businesses should “only maximize shareholder value.” Based on my reading of Friedman on the issue, that is an inaccurate statement.

Friedman was merely saying that maximizing shareholder value is the primary social responsibility of any publicly-owned business. In other words, businesses already do a great deal of good by producing products and services desired by their customers. But that doesn’t mean that businesses can’t do other good in the community as well if that doesn’t negatively impact shareholders. Take Whole Foods for example. The head of the company, John Mackey, is a libertarian. His company engages in what could only be described as a great deal of “community improvement” and public service.

Is that wrong according to Friedman’s logic? He’s not here to say, but I don’t think so. Clearly, being a good corporate citizen is also good business in most instances. It would seem to me that this adds to rather than detracting from the company’s bottom line. So, far from being the “world’s dumbest idea,” Friedman was merely defending businesses as already helping their customers and being socially responsible. Doing additional work beyond the “bottom line” isn’t a bad thing as long as it is in line with shareholder interests.

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