Yglesias on Friedman: Duty to Rent-Seek?

Matt Yglesias argues that Friedman’s contention that a corporation’s only duty is to maximize profits, not to pursue “social responsibility” projects, logically entails that businesses should also rent-seek: lobby government for special privileges to hamper their competitors, suppress wages, or augment their profits with subsidies. Certainly, if Friedman believed that literally the only moral duty corporate management has is to maximize shareholder return, this position logically entails that they should rent-seek or, for that matter, engage in theft, fraud, and abuse whenever doing so has a net positive expected return.

But this was not Friedman’s position. Friedman argued that businesses should maximize profit subject to the constraints of ordinary morality. The whole rationale behind Friedman’s position is that in a competitive, capitalistic economy profit maximization drives innovation and growth. Social responsibility projects, meanwhile, are beyond the scope of businesses’ expertise in most cases, and it is unlikely that they will do them effectively. His rationale is essentially utilitarian. But rent-seeking (and defrauding customers and so on) has net costs to society. Therefore, Friedman would argue that businesses should not rent-seek, even to maximize profits.

HT: Peter Suderman.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s