IESE Business School-University of Navarra - 1

MILTON FRIEDMAN

Antonio Argandoña

IESE Business School – University of Navarra Av. Pearson, 21 – 08034 Barcelona, Spain. Phone: (+34) 93 253 42 00 Fax: (+34) 93 253 43 43 Camino del Cerro del Águila, 3 (Ctra. de Castilla, km 5,180) – 28023 Madrid, Spain. Phone: (+34) 91 357 08 09 Fax: (+34) 91 357 29 13 Copyright © 2016 IESE Business School.

Working Paper WP-1152-E September, 2016

IESE Business School-University of Navarra

MILTON FRIEDMAN

Antonio Argandoña1

Abstract

This is an entry for the second edition of Sage's Encyclopedia of Business Ethics and Society. It provides a brief summary of the biography of Milton Friedman, one of the 20th century's most famous and influential economists. The entry discusses his major contributions to economics and their implications for business and economic ethics.

Keywords: Friedman, Milton; Capitalism; Liberalism; Monetarism

1 "La Caixa" Chair of Corporate Social Responsibility and Corporate Governance

IESE Business School-University of Navarra

MILTON FRIEDMAN

As Milton Friedman (1912–2006) was one of the 20th century’s most famous and influential economists, renowned for his depth of analysis, innovative capacity, practical outlook and persuasive style and for the political influence of his ideas. The son of immigrants, he studied at Rutgers (BA 1932), Chicago (MA 1933) and Columbia (PhD 1946). Married to Rose Director, he spent most of his professional life at the University of Chicago and was awarded the Nobel Prize for Economics (1976).

Friedman conceived of economics as a positive science, comparable to physics. Value judgments are consigned to private life and must not interfere with scientific proposals: there is no place for moral criteria in economics. The role of theory is to provide a framework for explanation and prediction. Theory is not validated by the realism of its assumptions but by its ability to generate predictions that are not refuted by facts.

Classical liberalism is perhaps the trait that best defines his policy proposals, based on two central pillars: individualism and the predominance of freedom. The ultimate reality is the individual. Values are subjective and autonomous and, outside individuals, there are no other references for their moral will. Ethics is a strictly private matter: there are no ethical standards, and one individual’s belief does not have to be valid for another individual (moral relativism).

Friedman upheld freedom as a basic moral principle: preserving freedom is a requirement for political action. The law is made by democratic consensus, without the imposition of values from outside. The market, ethically neutral, is based on private property and voluntary cooperation. It is the system of economic organization demanded by freedom. The role of the State is to create the framework in which individuals perform their free activities. This concept led to some of Friedman’s best-known proposals, including his criticism of price controls, the proposal of education vouchers, and negative income tax.

Friedman’s method defined the Chicago School, characterized by a solid grounding in the principles of neoclassical economics, strict logic in the development of these principles, and emphasis on empirical verification. For example, his 1970 statement that a firm’s sole purpose was to maximize profits was a logical consequence of the pursuit of economic efficiency.

In macroeconomics, Friedman was known as a key figure in monetarism, according to which money influences output and employment in the short term but this effect does not last – in the long term, money influences only prices. Monetary policy is powerful, and it should be practiced in accordance with simple rules. The capitalist economy is stable and therefore it is not desirable to implement active stabilizing policies, which may be dangerous (monetary policy) or ineffective (fiscal policy).

– Antonio Argandoña

2 - IESE Business School-University of Navarra

See also Business, purpose of; Capitalism; Chicago School of Economics; Liberalism; Free market; Freedom and liberty; Positive economics; Profit maximization, corporate social responsibility as.

Further Reading and References

Aune, J.A. (2007). “How to Read Milton Friedman: Corporate Social Responsibility and Today’s Capitalisms.” In S.K. May, G. Cheney & J. Roper (eds.). The Debate Over Corporate Social Responsibility (pp. 207–218). New York, NY: Oxford University Press.

Butler, E. (1985). Milton Friedman: A Guide to His Economic Thought. Aldershot, UK: Gower.

Friedman, M. (1962). Capitalism and Freedom. Chicago, IL: University of Chicago Press.

Friedman, M. (1970). “The Social Responsibility of Business Is to Increase Its Profits.” New York Time Magazine, September 13.

Friedman, M., & Friedman, R. (1980). Free to Choose: A Personal Statement. New York, NY: Harcourt Brace Jovanovich.

Grant, C. (1991). “Friedman Fallacies.” Journal of Business Ethics, 10(12), 907–914.

Mulligan, T. (1986). “A Critique of Milton Friedman’s Essay ‘The Social Responsibility of Business Is to Increase Its Profits’.” Journal of Business Ethics, 5(4), 265–269.