In the real world, where successful businesses are operated somewhere in the broad range between break-even and absolute-maximum profitability, there was and is always leeway for being a bit unnecessarily fair and responsible — to accept slightly smaller profit margins to fulfill implicit obligations to employees, customers, communities, society at large, decency itself. But while economists still argue over Friedman’s theories, his hot take 50 years ago for nonspecialists — the Friedman doctrine — turned a capitalist truism (profits are essential) into a simple-minded, unhinged, socially destructive monomania (only profits matter). In “A Christmas Carol,” Scrooge is redeemed when he abandons his nasty profit-mad view of life — and his name became a synonym for miserliness. Likewise, a century later, in “It’s a Wonderful Life,” the banker Mr. Potter is the evil, unredeemable, un-American villain. Here was Milton Friedman telling businesspeople that they’d been tricked by the liberal elite, that Scrooge and Potter were heroes they ought to emulate.
As for government regulation, Friedman’s doctrine included a heads-I-win-tails-you-lose Catch-22. Any virtuous act by businesses beyond what the law requires is simpering folly, he insists, yet according to him too almost any government attempt to regulate business is the beginning of the end of freedom and democracy. Friedman’s was a reductio ad absurdum purification of what had become a well-tempered, successful, increasingly fair free-market system. His vision was to revert to a fundamentalist capitalism from which a century of systemic interventions and buffers by democratic government and norms would be removed.
Friedman was horrified by “the present climate of opinion, with its widespread aversion to ‘capitalism,’ ‘profits,’ the ‘soulless corporation’ and so on.” Indeed, a survey-research firm that had been asking people every year if they thought “business tries to strike a fair balance between profits and the interests of the public” found the number who agreed had dropped to 33 percent in 1970 from 70 percent in 1968. (By the late ’70s it had bottomed out at 15 percent.) The very same month that The New Yorker filled a whole issue with excerpts from a liberal professor’s hurrah-for-revolution best seller, “The Greening of America,” Friedman delivered his counterrevolutionary economic manifesto to 1.5 million Times subscribers. Yet its self-righteous, hyperbolic, screw-the-Establishment confrontationalism is also a product of that 1970 moment: While Friedman was reacting against the surging support for social justice, he did so in the spirit of the late 1960s. Two ascendant countercultures, the hippies and the economic libertarians, in 1970 one large and one still tiny, shared a new ultraindividualism as a prime directive: If it feels good, do it; follow your bliss; find your own truth; and do your own thing were just nice utopian flip sides of every man for himself. For businessmen who felt demonized by public opinion and besieged by tougher government regulation for the last few years, the militancy of the Friedman doctrine in The New York freaking Times a year after Woodstock was thrilling. And then, as now, to get what they were mainly after politically — superlow taxes, minimized regulation — they exploited the voter backlash against street protests by aggrieved, angry younger Americans.
Just as America reached Peak Left, the Friedman doctrine — and, a year later, a battle plan commissioned by the U.S. Chamber of Commerce, drafted by the corporate lawyer Lewis Powell, quoting Friedman, just before he joined the Supreme Court — became founding scripture for an economic crusade to discredit the New Deal consensus and rewrite the social contract. Democratic and liberal leaders, alas, didn’t put up much of a fight. At the end of the 1970s, for instance, PBS commissioned a 10-episode series, “Free to Choose,” starring Friedman and funded by General Motors, General Mills and PepsiCo. A spokesperson for the show promised it would explain to viewers like you “how we’ve become puppets of big government.” And indeed, in that four-TV-channel era, Friedman used his noncommercial government-subsidized PBS platform to argue that the Food and Drug Administration, public schools, labor unions and federal taxes, among other bêtes noires, were bad for America. The series premiered in January 1980, just before the first Republican primaries, in which Ronald Reagan was a candidate. Of course, Reagan won the nomination and the presidency, after which Friedman patted himself on the back for his work with Goldwater and the epochal “move away from New Deal ideas.” As Friedman put it in 1982, you need “ideas that are lying around” — his ideas — as ready “alternatives to existing policies,” and then at a ripe moment “the politically impossible becomes politically inevitable.”
Throughout big business and finance and much of conventional wisdom, the Friedman doctrine came to mean that the pursuit of absolutely maximum profit for your company and yourself trumped every other value or motive, greed-is-good definitively replacing concern for the common good. A result was an American economy and culture driven by selfishness, callousness and recklessness. Before long, a big Hollywood movie’s most memorable scene was a kind of dramatization of the Friedman doctrine, Libertarian Economics for Dummies. “The point is, ladies and gentlemen,” sexy Gordon Gekko told his ecstatic fellow stockholders, “that greed — for lack of a better word — is good. Greed is right. Greed works.” And greed, he promised, would make America great again.
In 1976, Friedman became the first Chicago school economist to win a Nobel Prize. That same year, two members of the University of Rochester business-school faculty published a 55-page paper conceived as an operational elaboration of the Friedman doctrine. “Theory of the Firm” made righteous greed seem scientific, with equations and language of the manager’s indifference curve is tangent to a line with slope equal to — u kind. Its big point was that if corporate executives are mere salarymen rather than owners of company stock, they’ll overspend on “charitable contributions,” get lax on “employee discipline,” concern themselves too much about “personal relations (‘love,’ ‘respect,’ etc.) with employees” and “the attractiveness of the secretarial staff.” It is one of the most-cited economics papers ever. The professors also wrote a shorter, more accessible follow-up that ditched the math and the pretense of scholarly neutrality: “big business has been cast in the role of villain” by “consumer advocates, environmentalists and the like,” who want to spread “the cliché that corporations have ‘too much’ power.”
“The modern understanding” of how corporate managers should run companies, an article in The Harvard Business Review declared in 2012, “has been defined to a large extent” by that original Friedman-doctrine-inspired paper from 1976. It went beyond doctrinal Friedmania that companies must absolutely maximize profit, now positing as a kind of mathematical fact that stock price, a much less objective measure, was the only meaningful corporate metric. Soon a Reagan-administration S.E.C. rule change effectively gave free rein to public companies, for the first time since the New Deal, to buy up shares of their own stock on the open market in order to jack up the price. U.S. executive pay, meanwhile, shifted from consisting mainly of salary and bonus to mainly stock and stock options. Astonishingly, stock buybacks eventually consumed most of the earnings of S&P 500 companies, as they still do. So here we are with a re-engineered system in which just the richest 10th of us have 84 percent of all stock shares owned by Americans, and a ravaged economy in which the stock market is close to an all-time high.