Binyamin Appelbaum published “50 years of blaming Milton Friedman. Here’s Another Idea” in the New York Times of September 18, 2020. There is more wrong here than you can shake a stick at.
This author’s malevolence against the winner of the Nobel Prize in 1976 is animated by a quasi-Marxist hatred of business firms in general, corporations in particular.
Why is business bad? It violates rights? Huh? This is based on the Marxist labor theory of value: labor creates the entire product, but only receives part of the GDP. The rest goes to business in the form of rents, profits, interest, etc. But a mud pie and cherry pie can have identical labor inputs; entrepreneurship, consumer research, marketing, management, too, contribute value. They are the province of the hated business firms. Also the values of goods are continually changing after production; but the amount of labor previously incorporated into them cannot. Someone finds a large diamond by accident; the only labor consisted of bending down and picking it up. Yet, it is very valuable. So much for Marxist economic theory.
Anti-capitalist animus can be quelled by asking how do business firms start in the first place? They didn’t always exist. Companies owe their creation to an independent worker saving a bit, and using these funds to hire a fellow contractor at a wage higher than the latter’s present compensation. From whence springs this addition? From specialization and the division of labor. Two people working together, as in this early employer employee relationship, can often produce more than double what each of them could create working separately.
As for corporations, these are not unfairly privileged by government; they are merely firms that contractually interact with customers, workers, suppliers, on the basis of limited liability. If you don’t wish to do so, you are free to patronize the non-corporate sector.
Where do we get all this from? From basic economics 101, to which Milton Friedman has contributed more than most dismal scientists. Now he is being raked over the coals by an economic illiterate for his defense of corporate profit seeking, a system that has enriched pretty much everyone who has ever come into contact with it.
Mr. Appelbaum declares that the time is now past to get CEOs to behave themselves. They should now feel the lash of the all-loving state to induce acceptable woke conduct.
To wit, they should be made to “combat discrimination or reduce pollution or maintain community institutions.” But who says there is any economic discrimination either on a racial or sexual basis? Just because some people earn more than others does not at all establish any such conclusion. Milton Friedman’s students, Gary Becker, Thomas Sowell and Walter E. Williams, have done more than any other economists to dispel this myth.
If company X reduces pollution to a greater degree than required by law, more so than its competitors, it will soon face bankruptcy. Contrary to Appelbaum, Prof. Friedman supports the maintenance of private charities: on the part of stockholders, not corporations who have a fiduciary responsibility to them. Doing so would constitute fraud.
God bless Gordon Gekko whose motto was “Greed is good.” This stems from Adam Smith’s invisible hand: people can do more good for others out of an attempt to maximize profits than benevolence. A large part of Friedman’s “ideological” career has been a demonstration of this economic verity; that the “Wealth of Nations” is caused by economic freedom, not the statism recommended by Appelbaum.
Our critic seems particularly exercised by the fact that “companies … shovel money to shareholders by repurchasing their own shares…” This is part and parcel of the free enterprise system, wherein each and every act --- buying, selling, renting, lending – with no exceptions benefits all parties at least in the ex ante sense, and usually ex post too, albeit not necessarily.
Appelbaum acts as if we now enjoy the near laissez faire society brilliantly championed by Milton Friedman all his working life. And the result? “The shareholding class keeps getting richer; the rest of the nation is falling behind.” To the extent this occurs, it is in spite of the system extolled by this economist. It is due to the sort of crony capitalism Friedman brilliantly opposed.
What are this writer’s public policy recommendations? They are
“Instead of urging power companies to burn less fossil fuel, tax carbon emissions.” But Friedman favored the views of Ronald Coase, another Nobel Prize Winner in economics and another follower of Friedman’s. His famous “social costs” analysis in many ways parallels a carbon tax.
“Instead of shaming Amazon for squeezing small business, enforce antitrust laws.” But Friedman favored anti trust laws! His reservation was that such lawsuits are wealth reducing, and should only be undertaken when what he called the “dead weight loss” of monopoly was greater than the costs thereof. (Later in his career his support for this legislative enactment waned.)
Appelbaum avers that “Instead of pleading with McDonald’s to raise wages, raise the federal minimum wage.” This is a logical howler. Every student in introductory economics is taught that this evil, vicious law preys on the weakest economic actors. It is due to this legislation that the unemployment rate of black teens is quadruple that of mature white workers. Before its advent, no such relationship held. The low pre Covid unemployment rate of the former is due at least in part to not raising this barrier to entry. If this is such a great idea, why not raise the wage minimum to $150 per hour, or better yet, $15,000. Then, pretty much everyone would be unemployed, not as at present, disproportionately those with low market productivity.
I do not agree with each and every word Professor Friedman has ever written or spoken. Disagreements include school vouchers, the gold standard, the Fed, tax withholding, anti-trust, and the negative income tax. But any fair assessment of Milton Friedman would be very different than the one offered by Mr. Appelbaum.
Prof. Friedman once said, paraphrase, “Thanks to all economists, ever since Adam Smith, tariffs are now one percent lower than they would have otherwise been. And because of that, we have contributed to the world ten thousand times our salaries.” The same could be said about Friedman’s career; although I would see him and raise him to quite a bit more than a mere ten thousand-fold.