Milton Friedman

Definition

Milton Friedman was a prominent American economist and a leading figure in the Chicago School of economics, known for his strong belief in free markets and minimal government intervention. His work has had a profound impact on economic theory and policy, especially regarding the importance of individual freedom and the role of businesses in society. He argued that the primary responsibility of a corporation is to maximize profits for its shareholders while adhering to the law and ethical customs of society.

5 Must Know Facts For Your Next Test

1. Friedman argued that corporate executives should focus solely on increasing shareholder wealth, suggesting that any social responsibility beyond that is a misuse of corporate resources.
2. He introduced the concept of the 'invisible hand,' suggesting that individuals seeking their own interests can lead to positive economic outcomes for society as a whole.
3. Friedman's work on monetary policy emphasized the control of money supply as a key factor in managing inflation and fostering economic stability.
4. His views on free markets have influenced numerous policies around the world, advocating for deregulation and privatization as pathways to greater economic efficiency.
5. Friedman was awarded the Nobel Prize in Economic Sciences in 1976 for his contributions to the fields of consumption analysis, monetary history, and the complexity of stabilization policy.

Review Questions

• How does Milton Friedman's perspective on corporate responsibilities influence ethical decision-making in global business?
  • Milton Friedman’s perspective posits that the primary responsibility of corporations is to maximize profits for their shareholders while complying with legal standards. This view shapes ethical decision-making by emphasizing profit over broader social responsibilities. In global business contexts, this can lead companies to prioritize financial performance sometimes at the expense of social or environmental considerations, prompting debates about balancing profit motives with ethical obligations.
• Evaluate the implications of Friedman's shareholder theory for multinational corporations operating in diverse cultural environments.
  • Friedman's shareholder theory suggests that multinational corporations should focus primarily on maximizing shareholder value. However, this can create challenges when operating in diverse cultural environments where local expectations may include social responsibility or ethical conduct beyond profit maximization. Multinational corporations may face criticism if they disregard local customs and values in pursuit of profits, leading to potential conflicts between shareholder interests and community relations.
• Synthesize Friedman's economic theories with contemporary corporate social responsibility practices and assess their compatibility.
  • Milton Friedman's economic theories emphasize profit maximization as the core responsibility of businesses, while contemporary corporate social responsibility practices advocate for broader considerations including environmental sustainability and social equity. This creates a tension between traditional economic views and modern expectations for corporate behavior. While some argue that responsible practices can lead to long-term profitability, others contend that they dilute focus on immediate financial returns. A synthesis would require recognizing that long-term success may depend on balancing shareholder interests with societal impact, suggesting a potential evolution in how businesses perceive their roles.

Related terms

Shareholder Theory: A theory that asserts a company's primary obligation is to its shareholders, focusing on maximizing their financial returns.

Free Market Economy: An economic system where prices are determined by unrestricted competition between privately owned businesses, without government intervention.

Corporate Social Responsibility (CSR):

The practice of companies taking responsibility for their impact on society, including social, environmental, and economic factors.