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Milton Friedman’s 100th: Exploring His Wisdom for the Ages (Part III: Political Capitalism)

[Ed. note: Milton Friedman's views are also explored in Part I of this series (worldview) and in Part II (energy).]

“The two greatest enemies of free enterprise in the United States … have been, on the one hand, my fellow intellectuals and, on the other hand, the business corporations of this country.”

- Milton Friedman, “Which Way for Capitalism?” Reason, May 1977, p. 21.

The above quotation is striking, not so much for the ‘fellow intellectual’ part but for ‘business corporations.’ We often think of business in the same breath as ‘free enterprise,’ right?

But on closer inspection, and with the Bush/Obama bailouts, cronyism, or crony capitalism, is in focus. And Friedman’s above Reason quotation from 35 years ago is more understandable.

I have a whole website dedicated to the subject of political capitalism. I speak on this subject regularly to groups like the Bastiat Society, a group that is “building an international society of principled wealth creators.” In many of these talks, I share the Milton Friedman quotations from below.

Political Capitalism

“With some notable exceptions, businessmen favor free enterprise in general but are opposed to it when it comes to themselves.”

- Lecture “The Suicidal Impulse of the Business Community” (1983); cited in Filters Against Folly (1985) by Garrett Hardin ISBN 067080410X.

“Few U.S. industries sing the praises of free enterprise more loudly than the oil industry. Yet few industries rely so heavily on special government favors.”

- Milton Friedman, “Oil and the Middle East,” Newsweek, June 26, 1967. Reprinted in Friedman, An Economists Protest. Glen Ridge, NJ: Thomas Horton and Daughters , p. 21.

“Every intellectual believes in freedom for himself, but he’s opposed to freedom for others.…He thinks…there ought to be a central planning board that will establish social priorities.…The businessmen are just the opposite—every businessman is in favor of freedom for everybody else, but when it comes to himself that’s a different question.

He’s always the special case. He ought to get special privileges from the government, a tariff, this, that, and the other thing….”

- Milton Friedman, “An Interview With Milton Friedman,” Reason, December 1974.

“In the government sphere, as in the market, there seems to be an invisible hand, but it operates in precisely the opposite direction from Adam Smith’s: an individual who intends only to serve the public interest by fostering government intervention is ‘led by an invisible hand to promote’ private interests, ‘which was no part of his intention.’

- Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), pp. 5–6.

“There is, as it were, an invisible hand in politics that operates in precisely the opposite direction to Adam Smith’s invisible hand. Individuals who intend only to promote the general interest are led by the invisible hand to promote a special interest that they had no intention to promote.”

- Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), p. 292.

Special-interest Capitalism

“The growth of the bureaucracy in size and power affects every detail of the relation between a citizen and his government. If you have a grievance or can see a way of gaining an advantage from a government measure, your first recourse these days is likely to be to try to influence a bureaucrat to rule in your favor.”

- Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), pp. 296–97.

“Increasingly, success in business depends on knowing one’s way around Washington, having influence with legislators and bureaucrats. What has come to be called a ‘revolving door’ has developed between government and business. Serving a term as a civil servant in Washington has become an apprenticeship for a successful business career. Government jobs are sought less as the first step in a lifetime government career than for the value of contacts and inside knowledge to a possible future employer. Conflict-of-interest legislation proliferates, but at best only eliminates the most obvious abuses.”

“When a special interest seeks benefits through highly visible legislation, it not only must clothe its appeal in the rhetoric of the general interest, it must persuade a significant segment of disinterested persons that its appeal has merit. Legislation recognized as naked self-interest will seldom be adopted….

- Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), p. 297.

“The growth of the bureaucracy, reinforced by the changing role of the courts, has made a mockery of the ideal expressed by John Adams in his original (1779) draft of the Massachusetts constitution: ‘a government of laws instead of men’.”

- Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), p. 298.

“[A] ‘natural bias’ … in favor of government intervention is enormously strengthened when a special interest seeks benefits through administrative procedures rather than legislation…. Opposition seldom comes from disinterested persons concerned with the general interest. It comes from other interested parties, shippers or other truckers, who have their own axes to grind. The camouflage wears very thin indeed.”

- Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), p. 298.

“The majority does rule. But it is a rather special kind of majority. It consists of a coalition of special interests minorities. The way to get elected to Congress is to collect groups of, say, 2 or 3 percent of your constituents, each of which is strongly interested in one special issue that hardly concerns the rest of your constituents. Each group will be willing to vote for you if you promise to back its issue regardless of what you do about other issues. Put together enough such groups and you will have a 51 percent majority. That is the kind of logrolling majority that rules the country.”

- Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), pp. 302–303.

U.S. Oil Political History

“Few U.S. industries sing the praises of free enterprise more loudly than the oil industry. Yet few industries rely so heavily on special government favors.”

- Milton Friedman, “Oil and the Middle East,” Newsweek, June 26, 1967. Reprinted in Friedman, An Economists Protest. Glen Ridge, NJ: Thomas Horton and Daughters, p. 21.

 

Corporate Governance

“There is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.“

Policy Reform

“We believe that the formulation and adoption of an economic Bill of Rights would be the most effective step that could be taken to reserve the trend toward ever bigger government for two reasons: first, because the process of formulating the amendments would have great value in shaping the climate of opinion; second, because the enactment of amendments is a more direct and effective way of converting that climate of opinion into actual policy than our present legislative process.”

- Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), p. 300.

Conclusion … What About ‘Rent Seeking’?

“I’m not going to bash business for pursuing its self-interest. A corporate executive who goes to Washington seeking a tariff for his company’s product is pursuing his stockholders’ self-interest, and I cannot blame him for doing so.

As an employee of the stockholders, he has a fiduciary responsibility to promote their interest. If he’s made a valid, accurate judgment that a tariff will be in the self-interest of his enterprise, he is justified in lobbying for such a tariff. If he is a principled free trader, his proper recourse is to resign and seek a job where his principles do not conflict with his fiduciary interests.

So I don’t blame corporate executives who lobby for tariffs. I blame the rest of us for being such fools as to let them exploit us. We’re to blame, not them. We’re the ones who enact the tariffs.”

- Milton Friedman, “The Suicidal Impulse of the Business Community,” The Adam Smith Award Address by Milton Friedman, presented at the 31st Annual Meeting of the National Association for Business Economics, September 24-27, 1989 in San Francisco, California, and printed in the January 1990 issue of Business Economics®

7 comments

1 Rich Wilcke { 08.03.12 at 11:38 am }

Friedman was inconsistent on this issue. Telling a businessman that he not only does not blame him but actually feels he is duty bound – and “justified”- in lobbying for special privileges from Washington if he has made “a valid, accurate judgment…that a tariff [or any other such benefit] will be in the self-interest of his enterprise” is scarcely the position of a hardcore opponent of crony capitalism. Friedman’s position gives the corporate community an opening it can – and does – drive a truck through. If tariffs, subsidies, licensing and all the other privileges sought by business are not altering the “rules of the game,” what would be in Friedman’s view? I knew Dr. Friedman personally and admired him for many things. But his rather uneven position on corporate lobbying is not one of them.

2 rbradley { 08.03.12 at 4:03 pm }

I agree Rich …. This is why I endorse Principled Entrepreneurship ™ over Friedman’s profit-maximization model.

3 KuhnKat { 08.05.12 at 5:25 pm }

Boys, boys, did you ignore the next line??

“If he is a principled free trader, his proper recourse is to resign and seek a job where his principles do not conflict with his fiduciary interests. ”

What are we to do, simply go for maximum profit no matter what?? In that case, at times that would mean illegal activities such as theft of intellectual property, murder of CEO’s, buying influence…

What we have to realize is that capitalism is simply a way of organizing the economy just like Democracies and Republics are ways of organizing gubmint. They add no morality, balance, or whatever one prefers to represent our individual RIGHTS!! Socialism, Communism, Fascism… are in the same boat.

By saying it encourages these excesses one may as well say that all other types of organizations and methods encourage anti-human activity simply because that is apparently a way to maximum the results in that system for a subset!!

The issue is whether the short term maximization of profits by the CEO or other officer is really the best result for the stockholders. We have difficulty balancing immediate profits from building an organization that will be profitable due to its worth to the community and acceptance as a good moral influence.

We need to step back and look at what has created this need for Corporate Lobbying. In the Constitution and BOR there are no powers to regulate business the way it is now done. Corporate Law is an abortion that has been built by the rapacious to protect and extend their ability for control in their business environment. When the gubmint has this kind of power the Corp. Officer IS REQUIRED to be part of the Corporate Cronyism or lose. The need is to wipe out Corporate law to return responsibility DIRECTLY to the owners and managers and REMOVE the power of the gubmint to meddle in virtually everything we and the gubmint does!!!

When you talk about Principled Entrepreneurship, what will you do when a comnpetitor involves himself with the gubmint and their regulators in a manner that destroys your ability to run a profitable business???

Capitalism really has nothing to say about any of this!!

4 rbradley { 08.05.12 at 7:47 pm }

KK: Thank you. Entire quotation below:

“I’m not going to bash business for pursuing its self-interest. A corporate executive who goes to Washington seeking a tariff for his company’s product is pursuing his stockholders’ self-interest, and I cannot blame him for doing so. As an employee of the stockholders, he has a fiduciary responsibility to promote their interest. If he’s made a valid, accurate judgment that a tariff will be in the self-interest of his enterprise, he is justified in lobbying for such a tariff. If he is a principled free trader, his proper recourse is to resign and seek a job where his principles do not conflict with his fiduciary interests. So I don’t blame corporate executives who lobby for tariffs. I blame the rest of us for being such fools as to let them exploit us. We’re to blame, not them. We’re the ones who enact the tariffs.”

5 Vance Ginn { 08.06.12 at 10:24 am }

Excellent 3 part article honoring the legacy of Milton Friedman.

Recently, I wrote a column on PolicyMic honoring his principles of limited government and liberty:

http://www.policymic.com/articles/12091/milton-friedman-turns-100-honoring-his-legacy-of-liberty-and-limited-government.

Here here is another excellent Friedman quote regarding money that always resonates with me:

“Perhaps the single most important and most thoroughly documented yet obstinately rejected proposition is that ‘inflation is always and everywhere a monetary phenomenon. … That proposition has been known by some scholars and men of affairs for hundreds, if not thousands, of years. Yet it has not prevented governmental authorities from yielding to the temptation to mulct their subjects by debasing their money – taxation without representation – while vigorously denying that they are doing anything of the kind and attributing the resulting inflation to all sorts of other devils incarnate.”

6 Jonathan { 08.06.12 at 10:59 am }

When I was an engineering student at Brigham Young University many years ago, I attended the required American Heritage class (400 – 500 students at a time). The text for the course was Free To Choose by Milton Friedman. As I read the text, my first reaction was to take the side of government regulation. I’m sure that is the initial reaction of most people however as the teacher further expounded and I forced myself to see Friedman’s side, I came to love the book and the course and ultimately free market economics. I have continued to pursue my status as an amature economist (small “e”) by reading Hayak and of course Thomas Sowell among others. I can discuss the need to do away with most, if not all, government agencies with anyone and keep my point. Many people reduce themselves to calling me names because they cannot refute the free-market point I’ve made.

7 rbradley { 08.06.12 at 11:47 am }

Great story Jonathan…. I am considered an ‘amateur’ too by the professors. But MasterResource has risen to the top with talented amateurs like us, so keep the comments coming–and even post with us some day if there is a burning energy issue you want to tackle.

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