In doing so, instrumental stakeholder theory becomes a subset of shareholder value theory. A theory of the consumption function volume authoreditor. The strategic approach to stakeholder theory views stakeholders instrumentally. The idea got going with an article by milton friedman in the new york times in 1970. Such a theory is, in general, a complex intermixture of two elements. July 31, 1912 november 16, 2006 was an american economist who received the 1976 nobel memorial prize in economic sciences for his research on consumption analysis, monetary history and theory and the complexity of stabilization policy. Milton friedmans economic theories relate to this sort of inflation and its effects on the market and its buyers. Hetzel m ilton friedman died november 16, 2006, at the age of 94. Others have pointed out that the rest of friedmans theory is bunk. However, we think there is another way to move friedmans shareholder model to freemans stakeholder model and that is to recognize in friedman s position an internal contradiction, which in resolving necessitates that friedman himself must embrace stakeholder theory. The social responsibility of business is to increase its. In 1970, friedman wrote in ny times that there is one and only one social responsibility of business. In short, stakeholder theory either changes too much about business, or nothing important at all depending on ones interpretation.
Return to article details friedmans theory of social responsibility for business in the 21st century friedmans theory of social responsibility for business in the 21st century. A guide for the perplexed, business ethics quarterly 8, no. Friedmans justification for stockholder theory business. Milton friedman july 31, 1912 november 16, 2006 was an american economist. Maximize profits, shareholder interests, within the bounds of the law, no deception or fraud, moral norms of surrounding society. Any notable opposition to milton friedmans work the. Milton friedman simple english wikipedia, the free. This approach views shareholders as the economic engine of the organization and the only group to which the firm is socially responsible. Not everyone agreed with the shareholder value theory, even in the early years.
This pdf is a selection from an outofprint volume from the national bureau of economic research volume title. What keynes wrought, friedman undid, and supporters of the free market are deeply in. Business ethics friedman and stakeholder theory flashcards. Any attempt to put his contributions to economics into perspective can only begin to suggest the vast variety of ideas he discussed.
In a time where prices are once again on the rise, friedmans theories are as pertinent as ever. He defended the ideas that competitive markets work efficiently to allocate resources and that central banks are responsible for inflation. Friedman, the only social responsibility of business is to maximize pro. Dec 10, 2018 stockholder theory, also known as shareholder theory, says that a corporations managers have a duty to maximize shareholder returns. Milton friedmans exhibit a on shareholder value the notion that ge must reject a call for social responsibility and ignore buyer demands resulted in one of the worst business disasters in history, the gutting of general motors. This isnt quite the refutation of friedmans shareholder. The contributions of milton friedman to economics by. Jun 25, 2019 milton friedman and john maynard keynes are as integral to the story of economics as adam smith and karl marx. One of milton friedman s more controversial theories, known as the stockholder theory or the friedman doctrine, is that a companys only social responsibility is to increase profits for the owners. Shareholder theory economist milton friedman, whose work shaped much of 20thcentury corporate america, was a believer in the freemarket system and no government intervention. Milton friedman the new york times magazine september, 1970 when i hear businessmen speak eloquently about the social responsibilities of business in a freeenterprise system, i am reminded of the wonderful line about the frenchman who discovered at the age of 70 that he had been speaking prose all his life. View of friedmans theory of social responsibility for. Friedman s position was first stated in capitalism and freedom1 a.
An identification of the limits of this partnership. Stakeholder theory, corporate governance and public. Milton friedmans monetary economics and the quantitytheory. Milton friedman and john maynard keynes are as integral to the story of economics as adam smith and karl marx. Milton the social responsibility of business is to. Jul 29, 2017 were still saying that shareholder interests come first and only for a company, were just agreeing, as friedman would, that those interests are shareholder utility, not money exclusively. Efforts to supplant or improve the reigning theory of capitalism will have to do better. With george stigler and others, friedman was among the intellectual leaders of the chicago school of economics, a. During his time as professor at the university of chicago, friedman.
Almost everyone who writes on the topic writes at least partly in reaction to friedman. Milton friedman was an american economist and statistician best known for his strong belief in freemarket capitalism. One of milton friedmans more controversial theories, known as the stockholder theory or the friedman doctrine, is that a companys only social responsibility is to increase profits for the owners. Monetarism is the theory that how much money the government prints each year has a huge affect on the economy. Milton friedmans shareholder theory of management says that the purpose of a business is to make money for the owner or the stockholders of the business. The social responsibility of business is to increase its profits. The economic theories of milton friedman have as much merit today as. In part, it is a language designed to promote systematic and organized methods of reasoning. The shareholder theory is the viewpoint that the shareholders of a company are the primary group the company should be responsible to and as such, should maximize their profits and return a portion to the shareholders as a reward for investing in the firm. In either case, however, friedman emphasizes the concept of agency in arguing that the managers most direct obligation is to conduct the business in accordance with the desires of shareholders. Milton friedman began his teaching career at the university of chicago isolated intellectually.
The shareholder and stakeholder theories of corporate purpose. Freeman, milton friedman, libertarianism, stakeholder theory, stakeholder management, stockholder theory introduction the articles explaining, extolling, defending, and sometimes critiquing stakeholder theory are too numerous to list. The ones marked may be different from the article in the profile. Friedmans justification for stockholder theory friedmans thesis gives us the single social responsibility of business, and it gives us a set of sideconstraints, but we still need to see some justification for his thesis. Friedmans justification for stockholder theory business ethics. This is as opposed to the stakeholder theory, which takes all stakeholders into account, including the environment and society. The friedman doctrine, or shareholder theory, is a normative theory of business ethics advanced by economist milton friedman which holds that a firms main responsibility is to its shareholders. In our readings last week, freeman and friedman have two very contrasting opinions on the goals and responsibilities of a business. Burton 1981, 53 commented that attempting to portray the work of milton. Friedman is here reinforcing the freemarket view that desires are not the appropriate subject of moral scrutiny. He made major contributions to the fields of economics and statistics. This belief helped shape his shareholder theory of capitalism. Friedmans thesis gives us the single social responsibility of business, and it gives us a set of sideconstraints, but we still need to see some justification for his thesis.
He supports the government printing the same low rate of money each year rather than a different amount each year. Milton friedman, recipient of the 1976 nobel prize for economic science, was one of the most recognizable and influential proponents of liberty and markets in. Milton friedmans monetary economics and the quantitytheory tradition james r. Stockholder theory, also known as shareholder theory, says that a corporations managers have a duty to maximize shareholder returns. Dec 04, 2014 1970 milton friedmans essay a friedman doctrinethe social responsibility of business is to increase its profits appears in the new york times magazine. Milton friedmans price theory is certainly required reading for all economists. Milton friedmans point is simply that the companies who are making the most profit are the companies who are fulfilling our most pressing demands the best. According to the theory, which was first introduced by milton friedman in the 1960s, a corporation is primarily responsible to its stockholders due to the cyclical nature of business hierarchy. Milton friedman, the demand for money, and the ecbs. Friedmans theory of corporate social responsibility thomas carson milton friedmans theory about the social responsibilities of business is an extremely important and influential position. This cited by count includes citations to the following articles in scholar. However, in friedmans view the managers sole motivation for such engagement must always remain longterm increase in shareholder wealth. In 1973, peter drucker made a sustained argument against shareholder value in his classic book, management. To get a clearer picture of both stakeholder theory and its classical alternatives it is worth distinguishing several very different, if sometimes interrelated, theories.
Freeman, milton friedman, libertarianism, stakeholder theory, stakeholder management, stockholder theory. Goodpaster 1991 builds on the work of freeman 1984 and divides stakeholder theory into three approaches of strategic, multifiduciary, and a synthesis. Ecbs monetary policy strategy and shows the considerable influence of milton friedmans contributions on the formulation of that strategy. Opinion on stakeholder theory in our readings last week, freeman and friedman have two very contrasting opinions on the goals and responsibilities of a business. Milton friedman s price theory is certainly required reading for all economists. But the confusion keynes laments is still so rife and so much of a hindrance to the recognition that economics can be, and in part is, a positive science that it seems well to preface the main body of the. The contributions of milton friedman to economics robert l. What keynes wrought, friedman undid, and supporters of. Milton friedman, the demand for money, and the ecbs monetary. May 15, 2017 milton friedman, recipient of the 1976 nobel prize for economic science, was one of the most recognizable and influential proponents of liberty and markets in the 20th century, and the leader of. A tourist in new yorks greenwich village decided to have his portrait sketched by a sidewalk artist.
Although friedmans arguments have been examined, no such examination has satisfied an important needto structure such an examination in a classroom situation. Freeman supports the stakeholder theory in saying that anyone who has a stakeclaim in the firm has the right to be treated as a participating determining factor in the direction. Friedmans doctrine is also known as the shareholder theory. Friedmans position was first stated in capitalism and freedom1 a. The intellectual godfather of shareholder primacy is milton friedman, who wrote in 1970 that a corporate executive is an employee of the owners of the business i. Marginal productivity theory seems to move in only one direction. Friedman says that there is only one social responsibility for the business. Aug 29, 2019 milton friedman was an american economist and statistician best known for his strong belief in freemarket capitalism. Shareholders theory is introduced by milton friedman. Freeman supports the stakeholder theory in saying that anyone who has a stakeclaim in the firm has the right to be treated as a participating determining factor in the direction of a.
Milton friedmans monetary economics and the quantity. The economic theories of milton friedman have as much merit today as they did in the 1970s. Friedman s theory of corporate social responsibility thomas carson milton friedman s theory about the social responsibilities of business is an extremely important and influential position. As such, the goal of the firm is to maximize returns to. Were still saying that shareholder interests come first and only for a company, were just agreeing, as friedman would, that those interests are shareholder utility, not money exclusively. Second, lets clarify the meaning attributed to the stakeholder value and the method by which it was measured. Milton friedman thomas sowell tells the following story in his book basic economics. Milton friedman was an american nobel laureate economist and public intellectual. Consumers are also stakeholders, and even more so since the internet has allowed them to stay informed about the companies they buy from. It is the customer who determines what a business is.
Friedmans theory of corporate social responsibility. In his view, there is only one valid definition of business purpose. The thesis defends the stockholder theory as envisioned by milton friedman, that the only social responsibility of corporations is to increase its profits, while staying within the rules of the game which are a set of sideconstraints on profitmaximization. Original shareholder value article milton friedman to gm. In 1976, he was awarded the nobel prize in economics for his achievements in the fields of consumption analysis, monetary history and theory, and for his demonstration of the complexity of. Milton the social responsibility of business is to increase. The classic exchange might as well have taken place yesterday. The foundation of pay for performance is agency theory or shareholder primacy. Friedman offers several argumentsfor his stockholder theory of corporate moralresponsibility, according to which acorporations only moral responsibility is topromote the financial wellbeing of itsstockholders. Following a conjecture made by friedman 1956, the authors assign a role to uncer tainty in the money demand function. The paper also provides new evidence on the stability of euro area money demand.