Maximizing Profits


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A student tries to trip up Milton Friedman on the issue of morality and self-interest. (Note: Friedman was a master of the University-of-Chicago seminars in the 1960s, the intellectual equivalent of ultimate-fighter cage matches. His questioners did not seem to realize how seriously mismatched they were. "Don't attribute to me your conventional view of what a, quote, conservative believes because I am not a conservative.") Why does Friedman not think the firm as firm has any social obligation other than to obey the law and make a profit?

The Milton Friedman chorus, singing lyrics that say a corporation is amoral and has as its purpose the satisfaction of stockholders.

What exactly is a corporation? Does it have real, physical existence? Can you take a picture of one? (A picture of a building is not a picture of a corporation.) Economists argue that the government cannot tax a corporation because a corporation does not eat, drink, or consume resources--people do that. Any tax on imposed on a corporation ultimately is borne by a real person who has less income than he or she otherwise would have. Friedman argues a similar point about corporation donations to charity. Who ultimately makes the contribution? Is there a potential conflict of interest involved?

Profit in Real Firms

Going Places (1948) is an eight-minute cartoon showing the development of a business using the example of soap production. It hits on many of the issues in running a business, illustrating the importance of meeting demand, improving technology, and keeping costs down. It shows the role not just of the profit motive, but also of competition keeping it in check. (Note the bit near the end when the company tries to fix prices with another soap company. Would they be successful if entry into the business was difficult or impossible?)

These links were checked on May 14, 2009.
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Copyright Robert Schenk