The Final Dictum: Friedman famously quotes his own book, Capitalism and Freedom:
"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."
1. Core Thesis: Only People Have Responsibilities
Friedman’s fundamental argument is that a corporation is an "artificial person" and cannot have responsibilities in an active sense. Only individual people—such as proprietors or corporate executives—can have responsibilities.
The Agency Relationship: A corporate executive is an employee of the owners (shareholders). Their primary duty is to conduct the business according to the owners' desires, which is generally to maximize profit while following the "rules of the game" (law and ethical custom).
Deviation from Duty: If an executive spends company money on "social" goals (e.g., reducing pollution beyond legal requirements), they are acting as a principal rather than an agent.
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2. The Economic Critique: Taxation Without Representation
Friedman argues that "social responsibility" is effectively a form of taxation. When an executive pursues social goals at the expense of corporate profits, they are spending:
Shareholders' Money: By reducing dividends.
Customers' Money: By raising prices.
Employees' Money: By lowering wages.
The Political Argument:
Friedman posits that the imposition of taxes and the expenditure of tax proceeds are governmental functions. When a businessman does this, he becomes a self-appointed legislator, executive, and jurist, operating without the democratic checks of an election or a formal political process.
3. The Expertise Gap and Practical Failure
Even if an executive were permitted to act on "social responsibility," Friedman argues they lack the tools to do so effectively:
Lack of Specialized Knowledge: An executive is an expert in running a business, not in fighting inflation, solving poverty, or determining the optimal level of environmental preservation for a community.
The Inflation Example: If an executive refrains from increasing prices to "fight inflation," they have no way of knowing if that action actually helps the economy or simply creates a shortage for their specific product.
4. The "Cloak" of Social Responsibility
Friedman observes that many actions labeled as "socially responsible" are actually just enlightened self-interest.
Strategic Philanthropy: A corporation may provide amenities to a local community to attract better employees or reduce the local tax burden.
The "Hypocritical Window-Dressing": While Friedman accepts these actions if they help profits, he criticizes the "hypocrisy" of calling them "social responsibility." He warns that this rhetoric strengthens the idea that the pursuit of profit is "wicked" and must be controlled by external political forces.
5. Market vs. Political Mechanisms
Friedman distinguishes between two ways of organizing society:
Market Mechanism (Unanimity): Based on voluntary cooperation. No individual can coerce another; if a deal isn't mutually beneficial, it doesn't happen.
Political Mechanism (Conformity): Based on the "general social interest." If a group is outvoted, they must still conform to the majority's decision (e.g., paying taxes for a program they don't support).
Friedman argues that the doctrine of social responsibility is a "subversive doctrine" because it seeks to replace market mechanisms with political ones, moving society toward socialism.
Key Facts, Figures, and Quotes
Category
Details
Primary Date
September 13, 1970
Key Text Referenced
Capitalism and Freedom (Friedman's 1962 book)
Specific Examples Cited
Refraining from price hikes, hiring the "hard-core" unemployed over better-qualified candidates, reducing pollution beyond legal mandates.
Core Philosophy
The "Friedman Doctrine" or "Shareholder Primacy."
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