Thank you*, Milton Friedman, and the horse you rode in on

(c) Craig A. Stewart and Marion Krefeldt, 26 February 2021.

* “Thank you” is a euphemism. The reader is invited to substitute a verb of their own choosing; one of Samuel Jackson’s favorite verbs may be appropriate.


For the last 50 years, the US economy has changed to the favor of the very richest and to the harm of the everyday US citizen. Perhaps the most damning indicator of how the US economy has evolved to the harm of the everyday US citizen is that the real buying power of the everyday full-time worker in the US has actually declined since 1970! Another terrifically damning statistic is the percentage of total household wealth held by the 1% of the richest US citizens. In other words, since 1970, the very rich have become much richer, and everyday working Americans are less well off.  According to Forbes magazine, for 2020, “the top 1% of Americans have a combined net worth of $34.2 trillion (or 30.4% of all household wealth in the U.S.), while the bottom 50% of the population holds just $2.1 trillion combined (or 1.9% of all wealth).” The share of household wealth held by the top 1% has grown threefold since 1970.

Metric[1] 1970
(or earliest available date)
2020 % Change from 1970 to 2020
Dow Jones industrials average close for year $753$30,606 +3,964%
Median Average Wage   $66,001
in 2020 dollars.
in 1970 dollars.
$48,516 -26%
Trade deficit with China, per year 6
Billion in 1985 (Trade began in 1979)
% of wealth in US held by top 1% of people 10% 30.4% +204%
Corporate Federal Tax rate 48%
for income over $25,000
21% -56%


There are many factors but perhaps the most fundamental is the effect of a 1972 article published in the New York Times. This article was entitled A Friedman doctrine – The Social Responsibility of Business Is to Increase Its Profits [2]. Milton Friedman was a famous “Chicago School” economist who later was awarded a Nobel Prize[3] – although not for the contents of this essay. In this 1972 essay Dr. Friedman made three basic assertions:

  • In a free‐enterprise, private‐property system, a corporate executive is an employee of the owners of the business [In the case of a publicly traded stock, Friedman goes on to point out that this is the shareholders].
  • there is one and only one … responsibility of business—to use its resources and engage in activities designed to increase its profits
  • [And do so] while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom

The Friedman Principle has been embraced by corporations in the United States as the key operating principle of corporate organization.

In addition to the impact in the personal finances of US Citizens, there have been many other effects of the Friedman Principle on the US economy. The US is no longer able to manufacture products critical to its operation and defense. Nowhere in the United States are any sort of computer screen or television manufactured. Nowhere in the United States is something as simple as a spoon mass manufactured. The United States is utterly dependent upon China for the manufacture of essential goods and material related to the national defense. The outsourcing of manufacturing to China has had several disastrous effects on the United States, including the following:

  • If we were to get into a shooting war with China, US soldiers might well be fighting naked within six months. The United States is not currently in a position to sustain a conventional war with China. The US would be unable to sustain such a war because the US purchases the materials and supplies needed to conduct a war largely from China. Plus, the fundamentally unbalanced US Federal Budget is currently managed on an ongoing basis only by borrowing money from China. China would be unlikely to loan money to the US so that the US could prosecute a war against China.
  • The impossibility of prosecuting a conventional war against China creates a moral hazard in that decision makers in the US might be more inclined to initiate use of nuclear weapons in a war with China
  • Even in peacetime, outsourcing of manufacturing to China as a way to increase corporate profits also leads to the theft of intellectual property. The Chinese government views governmental spying for the benefit of Chinese companies as a perfectly rational thing to do (and views spying by Chinese companies as equally rational). The extent of Chinese intellectual theft is well documents (see for example multiple articles in The Economist on this topic [4].)
  • Meanwhile the once proud US worker – workers who created the ships that defeated Nazi Germany and Imperialist Japan, and the worker that built the cars that made Detroit a world leader – have been reduced to service jobs. Workers forced to try to make a living handing out bags of bad hamburgers and boxes of ersatz chicken pieces.

It is our contention that each one of the three main elements of this Friedman Principle is fundamentally incorrect. We take each one in turn, showing where each of the three parts is wrong on the basis of corporate legal history, effects that have come from his statements, or both. Before so doing, we note that Dr. Friedman was a very bright and accomplished person – including being awarded a Nobel Prize in Economics. That doesn’t mean he was always right.

In this essay we will narrow the scope of Friedman’s original article a bit. Dr. Friedman scope of businesses in general to corporations in particular, since publicly held (stock ownership) corporations constitute the large majority of businesses operating in the US.

History of Corporate Law and fallacies in the three key elements of Friedman’s Doctrine

First: What is a corporation? A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law ‘born out of statute…”[5]. This is a very critical point. Corporations don’t just arise from nowhere. They arise because governments enact laws that create benefits for corporations that do not exist for other business entities. Those laws are within the US, at least, passed into law by the action of the House of Representatives, the Senate, and the President of the Unites States. Each of these people are in turn elected by (and thus responsible to) the citizenry whose collective action has resulted in their election. From this, one would assume that the intent of the people who wrote and voted to ratify the US constitution had in mind that laws would, somehow and at least in general, benefit the United States and its citizenry. That the existence of corporations in the United States derives ultimately from votes of US citizens is a critical point.

The existence of corporations in the US follows their development in Great Britain. The critical elements of a corporation were put in place in the 1800s: joint ownership by multiple people who own shares of the corporation; and limitations of legal liability of the corporation up to the total assets of the corporation itself. The central concept of corporation is that the liability of investors is limited to the value of the shares of a corporation that they own. The corporation itself becomes a legal entity. One of the intended and real outcomes of this structure is to foster innovation. A corporation can embark on a new and novel venture and each shareholder’s exposure in such a venture is, depending on how one looks at it, either the value of the investment one made in purchasing stocks, or the value of stocks at the time of legal action against a corporation. US law from the time of ratification of the Constitution was generally skeptical of corporations. After the stock market crash of 1929, the United States enacted two foundational pieces of corporate law: The Securities Act of 1933 [6], and the Securities Exchange Act of 1934 [7]. In short, the first of these laws required that securities be registered and that the financial essentials of corporate operations be disclosed to potential shareholders; the second of these acts established stock exchanges. These laws, and supreme court cases confirming that corporations in the United States can be treated as legal entities in legal processes, were the fundamental elements of US regulation and jurisprudence in place in 1970.

To be clear: at the time Milton Friedman wrote his famous essay, the primary purposes for the existence of Corporations as recorded in US law and court case history were to:

  • foster innovation;
  • enable everyday citizens to invest in the stock market with accurate information, extensive enough to allow a person to make a well-informed decision as to whether or not to purchase a particular stock; and
  • allow for the disposition of conflicts among corporations and between individuals and corporations.

All of these factors bettered the lives of everyday US citizens while also enabling corporations to turn a profit.  

Below we will examine the three key points from Friedman’s essay, although not in the order they appear originally:

2) there is one and only one … responsibility of business—to use its resources and engage in activities designed to increase its profits

Let’s be clear about where this part of the Friedman Principle came from: it was just made up by Dr. Friedman. Period. There is absolutely nothing in the history of corporate law that supports this statement. Indeed, the history of corporate law and jurisprudence in the United States contradict this assertion by Dr. Friedman. This statement is simply wrong.

1) In a free‐enterprise, private‐property system, a corporate executive is an employee of the owners of the business

The US is not a free enterprise system. It is a system in which private business operates with a variety of direct and indirect subsidies. These subsidies range from government funded and provided services essential to the operation of some private enterprise to legal limits on competition. One specific example is the TSA, which is paid for by the US government and without which US airlines could not function. If the TSA were not funded by US taxpayers, then it would have to be funded by airlines. There are of course more general subsidies such as the taxes placed on US citizens that are used to fund paving of roads, fire protection, protection and management of water supplies, and other basic infrastructure used by businesses. To the extent that corporations receive subsidies through government spending based on taxes or borrowing in the name of US citizens (which is essentially a tax on future US citizens), corporate executives ought to be answerable to the taxpayers who fund these subsidies.

Furthermore, corporations exist in a world composed of more than just private property. Certainly there exists private property: cars, houses, model trains, and individual bottle of water. But air and water supplies are among many entities that are a common good, and not private property. In many cases it is clear that the pursuit of corporate profits can place common societal goods essential to the lives and well-being of US citizens at risk, so corporations should be answerable to US citizens regarding these matters as well.

So, while the above statement about free-enterprise systems by Dr. Friedman might be true in theory, it’s irrelevant to the situation of the corporation within the United States. The conclusion of Dr. Friedman’s statement that corporate executives are answerable only to stockholders is clearly incorrect and immoral within the United States. (It is clearly immoral for a corporation that causes environmental damage to risk the lives of US citizens without the consent of said citizens).

3) [And do so] while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom

It is blatantly obvious that the phrase “ethical custom” is not a topic of consensus within the United States now and was not in 1970. Furthermore, to the extent that this statement was intended to mean “corporations ought to behave reasonably” what has become clear over time is that laws and detailed regulations are increasingly written on the basis of promoting the interests of corporations, including for example the regulatory rules that enabled Boeing to put into service a faulty aircraft resulting in hundreds of deaths.

Errors in Friedman’s essay

There are three core errors in Freidman’s doctrine, and one element of naivete that constitutes gross negligence.

The first critical error is one of omission: Friedman makes an unqualified statement that has been interpreted in ways that are detrimental to the national security of the United States and the ability of everyday US citizens to live a decent life and a reasonable ability to exercise the right of pursuit of happiness (which is escribed as inalienable in the US Declaration of Independence). The contrariness of Friedman’s Doctrine to history of corporate law was described above. An additional key point is that Friedman did not specify a time course over which profits should be maximized. Failing such a specification, corporate action has devolved to maximizing profits over the course of quarters or years. Is it really in the best interests even of shareholders generally for corporations to maximize quarterly profits if that means the eventual bankruptcy of a corporation?

Over and over in the history of corporate decision making since 1970 we can see the evidence that pursuit of high quarterly and annual profits has led to disasters in the longer run.

Consider the case of Andrea Manfredi, a professional Italian cyclist. Mr. Manfredi and 345 other people are dead today thanks to the Friedman Principle, as implemented by Boeing and the US federal government. Boeing took shortcuts in development and deployment of the Boeing 737 MAX. Andrea Manfredi was in one of the two Boeing 737 planes that crashed due to failures in software systems and documenting and training about the plane’s software. These crashes resulted in a total of 346 deaths [8]. These deaths were the direct cause of Boeing’s rush to get the 737 MAX into service because failure to do so would cause them to miss contracted delivery times and decrease their stock value [9]. This rush and insufficient testing were not caught by US Federal Government inspectors because of a cozy arrangement that essentially enables Boeing in a position of self-reporting how progress is going on a new plane, rather than having the progress of new plane development actually inspected by people working for the US government.

Boeing is just one of many examples where the private sector and the US public have both been hurt by attention to quarterly profits rather than the long run health of corporations.

This second critical statement in Friedman’s article is thus also wrong. Friedman makes statements that are both contrary to US corporate law at the time and incorrect in a factual way as well. Friedman makes the statement in his essay that “A corporation is an artificial person and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities, even in this vague sense.” This is simply wrong – then and now. First, corporations in particular have a wide variety of responsibilities written in to the black and white text of US corporate law. Furthermore, corporations as they exist today in the US exist as a result of the actions of representatives, senators, and US Presidents who make law, and receive subsidies from US taxpayers present and of the future (those who will pay taxes that go in part to make payments on US debts taken on to fund subsidies for US corporations). It must therefore be the case that corporations have a responsibility to the people who voted into office those people who made current corporate law and who pay taxes to provide subsidies that aid corporations. The failure to recognize that corporations operate with funding from the US citizenry and in a sense at the legal behest of those who act in the interests of US voters is perhaps the most critical intellectual error in Friedman’s logic.

The third core error and a matter of grave naivete in the Friedman Principle lies in the belief that corporations would comply with social ethical principles in the absence of laws enforcing those principles. Dr. Friedman failed to foresee the extent to which laws are drafted by “experts” who are employees of corporations (or thinktanks operating with corporate funding). Laws are then finalized, voted on, and signed by lawmakers who often feel more answerable to corporate campaign donors than everyday voters. To the extent that this element of Dr. Friedman’s essay was intended to assure that somehow corporations acted responsibly within US society and applicable ethical principles, he was naive to the point of being proved gravely incorrect by the course of events since the publication of his essay.

Corporations doing the right thing? Consider the situation, for example of Adam Hudson and his father Jim Hudson, as explained in a 2014 article based on a Marketplace series about food stamps [10]. Jim Hudson worked for GM starting in 1992 at a wage that would be equivalent to a bit more than $16 an hour in 2014 dollars. At that wage Jim Hudson was successful at being the sole earner of money outside the household. His son Adam, at age 21 in 2014, earned little enough that he and his fiancé qualified for food stamps based on his wage of $8.25 at Wal-Mart – in other words, roughly half the real earnings his father enjoyed as a 21-year-old. When states analyze recipients of food assistance, Wal-Mart employees are frequently the number one category of food assistance recipients, while the Walton family (owners of Wal-Mart) are one of the richest families in the United States. In other words, instead of Wal-Mart paying a living wage, Wal-Mart expects many of its employees to subsist by obtaining food stamps.

Now consider the employer of Adam Hudson: Walmart, owned by the Walton family. The Walton family is one of the richest in the world and keeps getting richer. Part of the increase in their riches comes from subsidies from taxpayers – including its own underpaid workers. Taxpayers whose tax payments fund the public support given to Walmart employees because of their relative poverty. In other words, taxes, including the taxes paid by Wal-Mart employees, are being used to subsidize the earnings of Wal-Mart employees so that the employees can simply get by. Taxpayers are subsidizing the Walton family. This is clearly unethical even though it is within the rule of law. These laws are put into place by people elected into federal public office with the assistance of campaign donations from the very rich of the US. The Walton family is active in politics through the making of significant political donations.

If Wal-Mart paid a living wage to its employees would the Walton family have somewhat less than their current collective net worth of more than $200 Billion dollars? Sure! Exactly how many billions of dollars does any one family need, anyway? If the collective net worth of the Walton family were a few billion dollars less and each of the employees of Wal-Mart who wanted a full-time job had one and could support a family on the basis of one person working, would that be a good thing? Absolutely. This is a perfect example of why Friedman’s idea of following laws and social norms is inadequate. First, it seems unseemly and outside of social ethical norms to us for one family to be obscenely wealthy as a direct result of keeping their workers in poverty. Second, it is possible for the Walton family to do this because the US government has failed to pass laws increasing the federal minimum wages. Walmart can maintain an economically impoverished workforce because Congress and the President of the United States allow that.

The COVID-19 Pandemic

In time, much will be written about the COVID-19 pandemic. What we can say for now is as follows:

  • For most of the COVID-19 Pandemic, the US government focused more on the stock market than saving lives.
  • More than 500,000 people have died as a direct result of COVI D-19; more to be sure if indirect effects are counted (e.g. suicides resulting from despair).
  • The overall responses to the COVID-19 pandemic have pushed the stock market to new heights, while at the same time widening the gap within the US between the haves and the have-nots [11]. Large US corporations, rather than giving those willing to work a path up, are beating the impoverished down.


We will not try to write a specific prescription for how to correct the current situation. But in general, a correction of effective principles of corporate governance within the US should first restore the US ability to defend itself and maintain its integrity as a nation, and secondarily should restore the inalienable right to pursuit of happiness. This implies an inalienable right to an economic system that provides a living wage for people willing to work, and better incentives to work than not to work. While not prescribing a specific solution, we do propose a simple principled basis for a successor to the Friedman Doctrine. A successor to the Friedman doctrine should recognize the responsibility of corporations to currently living stakeholders and recognize the rights of future generations of US citizens to inherit a sustainable country in which to live. A successor to the Friedman principle should recognize that corporations do have a responsibility to attend to corporate profits, and should recognize what matters most is long term and sustainable profits rather than short term tactics that generate big bonuses for corporate leaders at the expense of quality jobs for US citizens.

Appendix: Sources for data

Metric 1970 2020
Dow Jones industrials average close for year
Median Average Wage Average 1970 income from   Inflation value between 1970 and 2020 from taken from
Balance of trade with china 1985 data from
% of wealth in US held by top 1% of people

[1] Sources for the data shown are at the end of this essay. A longer overview ow how the economy has hurt the average US citizen – and helped the rich – is available online at



[4] Example articles include and

[5] Hirst, Scott (2018-07-01). “The Case for Investor Ordering”The Harvard Law School Program on Corporate Governance Discussion Paper. No. 2017-13.