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The toxic legacy of Milton Friedman

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From flickr.com/photos/47422005@N04/4395387553/: Milton Friedman, Chicago forbidden
Milton Friedman, Chicago forbidden
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In a 1970 essay in The New York Times Magazine, Milton Friedman made a bold and very influential claim that is still reverentially quoted by conservatives. It was, in fact, a recipe for the massive corruption and dysfunction of our political system today, proving that a Nobel prize for economics is no guarantee of wisdom.

Friedman argued that the only "social responsibility" of corporate executives, as employees of investor-owners, is "to conduct the business in accordance with [the owners'] 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."

All the other social responsibilities such as environmental protection or the integrity of monetary and banking systems belong to government. For instance, a corporate executive has no "social responsibility" to promote a cleaner environment by polluting less than the law allows if that reduces profits. She can contribute to an environmental NGO from her own pocket, but her official and moral duty is to spend investor money for the purpose it was entrusted to her: investors' profit.

In Friedman's fairy-tale capitalism profits are the pixie dust that lets a society soar. Corporations make money only if people freely choose to purchase their products and services. That wouldn't happen unless purchasers benefitted from the transactions. So the more transactions and profits, the more benefits accumulate and the better off a society is. That's why Friedman wants us to admire profit-driven executives: they are social benefactors juiced by the Invisible Hand.

Of course, Friedman knew that corporations are run by humans who may be tempted to make money in ways that harm society (such as polluting waterways or making unsafe products). He blithely assured us that even huge corporations such as GE or Exxon Mobile (with revenues larger than those of many nations) can be held in check by law and "ethical custom."

Some people still believe this even after Wall Street executives took advantage of lax securities legislation from the Clinton era to crash the world economy in 2007-8. They even believe we still have the rule of law even though none of these banksters went to jail despite their well-documented fraud.

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If the only "social responsibility" of corporations is to make money, then the combined power of large corporations must be offset by a strong law-making power, with enough resources to carry out the broad social responsibilities listed in the preamble to our Constitution: "establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty."

That's why the Federalists won the argument in favor of a strong central government. As Alexander Hamilton put it: "Not to confer in each case a degree of power commensurate to the end would be to violate the most obvious rules of prudence and propriety, and improvidently to trust the great interests of the nation to hands which are disabled from managing them with vigor and success." If you're as anti-tax and anti-government as most Republicans claim to be, then you should want to live in an underdeveloped country with a subsistence economy.

To call something an "end" is to say that it is desirable for its own sake. What is merely a "means" is desirable only for the sake of something else (like a trip to the dentist to get relief from a toothache). Justice, tranquility and the general welfare are ends, goals with intrinsic value. Money and wealth have no intrinsic value; they are purely means, only as good as the ends they are used for. Wealth in the hands of criminals is a bad, not a good.

To subordinate ends to means, inherent value to derivative value, is irrational. To subordinate the function and goals of law-making (i.e. government) to that of making "as much money as possible" would be irrational and bend society out of shape.

That's exactly what happens when the managements of large corporations, individually or in groups such as the U.S. Chamber of Commerce and the Business Roundtable, use their firms' profits to elect subservient legislators who oppose any law or policy that threatens corporate profits. These executives are just being, in Friedman's words, "socially responsible."

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The $1.1 trillion spending bill passed by the Senate on Dec. 13 contains a glaring example of the kind of corruption invited by Friedman. It has a provision allowing big banks to trade in risky derivatives with funds guaranteed by the FDIC (the agency that insures your bank deposits up to $250,000). This undermines a provision of the Dodd-Frank Bill designed to control the dangerous speculation that led to a global financial crisis in 2008.

The lobbying effort for this provision included personal calls from the always socially responsible Jamie Dimon. He heads JPMorgan Chase, the nation's largest bank. It paid out $25 billion i n fines and penalties in 2012-13 for offenses including bid-rigging, bribery and fraud.

 

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I'm a retired philosophy professor at Centre College. I also am a regular columnist for The Danville Advocate-Messenger,the local paper in what was my home town (I now live in Connecticut. My last book was Posthumanity-Thinking Philosophically (more...)
 

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