You’ve probably heard the name Milton Friedman. Even if you haven't, you definitely live in the world he helped build. Back in 1970, he dropped a rhetorical bomb in The New York Times Magazine with an essay titled "The Social Responsibility of Business Is to Increase Its Profits." It wasn't just a catchy headline. It was a declaration of war against the idea that corporations should be anything other than money-making machines. People still lose their minds over it today.
Friedman was a tiny man with a massive brain and a Nobel Prize in Economics. He argued that a corporate executive is an employee of the owners of the business. That executive has a direct responsibility to those owners—the shareholders. And what do those owners want? Usually, they want to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.
It sounds cold. It sounds like the "Greed is Good" speech from Wall Street, but Friedman wasn't some cartoon villain. He was a libertarian who believed that when managers start spending "company money" on social causes, they are essentially taxing the shareholders without their consent. He thought it was fundamentally undemocratic for a CEO to decide how to solve the world's problems using someone else's cash.
The Core of the Friedman Doctrine
The idea that the social responsibility of business is to increase its profits rests on a specific view of property rights. If I hire you to manage my lemonade stand, and you take half the profits to buy books for the local library without asking me, you've effectively stolen from me. That was Friedman's logic. He saw the "Social Responsibility" movement of the late 60s as a "fundamentally subversive doctrine" that led straight toward socialism.
He wasn't saying businesses should be allowed to break the law. Far from it. He specifically noted they must stay "within the rules of the game." This means no fraud, no deception, and following the regulations set by the government. But he was adamant: the government sets the rules, and the business plays the game. If you want to change the world, do it on your own time with your own paycheck.
Why this resonates (and why it fails)
There is a refreshing clarity to it. You know exactly what a business is for. It produces goods people want, provides jobs for workers, and generates wealth for investors. When a company focuses solely on profit, it has to be efficient. It has to innovate. It has to compete. All of that, in theory, makes society better off.
But things get messy fast.
Think about the opioid crisis. Purdue Pharma was technically "increasing its profits" by aggressively marketing OxyContin. They followed the "rules of the game" for a long time by lobbying for favorable regulations and using a massive sales force to influence doctors. According to a strict, narrow reading of Friedman, were they just being good capitalists? Most people would say no. They’d say that’s where the "ethical custom" part of Friedman's argument gets ignored.
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The Rise of Stakeholder Capitalism
The world has changed since 1970. We now have the Business Roundtable—a group of CEOs from the biggest companies in America—who issued a statement in 2019 basically saying Friedman was wrong. They argued that companies have a responsibility to all stakeholders: customers, employees, suppliers, communities, and shareholders.
This is "Stakeholder Capitalism." It’s the idea that a business can't thrive in a failing society. If your employees are too poor to buy your products, or if your factory is under ten feet of water because of climate change, your "increased profits" aren't going to last very long. Larry Fink, the CEO of BlackRock, has been a huge proponent of this. He manages trillions of dollars and has been very vocal about the fact that "purpose" and "profit" are linked.
The Problem with Purpose
Here is the catch: when everyone is a stakeholder, no one is a shareholder.
Critics of the stakeholder model argue that it gives CEOs too much power. If a CEO can justify any decision by saying it's "for the community" or "for the environment," how do you hold them accountable when the company starts bleeding money? It becomes a shield for incompetence.
Honestly, some people think "Corporate Social Responsibility" (CSR) is just fancy PR. They call it "greenwashing." A company puts a rainbow on its logo in June or tweets about a social justice issue, but behind the scenes, they’re still lobbying for tax breaks that hurt the same communities they claim to support. Friedman would have seen right through that. He would have called it hypocritical.
Real World Examples: Patagonia vs. The World
Look at Patagonia. The founder, Yvon Chouinard, famously "gave away" the company to a trust and a non-profit to fight climate change. In his mind, the social responsibility of his business was definitely not just to increase profits for shareholders. It was to save the planet.
But here's the funny thing: Patagonia is incredibly profitable.
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By being "radical," they built a brand loyalty that most companies would kill for. People buy a $200 fleece not just because it's warm, but because of what it says about them. This creates a weird paradox. If doing "good" makes you more "profit," then Friedman is actually right—you're just being a smart businessman. You’ve identified a market of conscious consumers and you’re maximizing your return by serving them.
Then you have the other side of the coin. Look at the ESG (Environmental, Social, and Governance) investing trend. It's been under massive fire lately. States like Texas and Florida have pulled billions of dollars out of investment funds that prioritize ESG, arguing that these funds are neglecting their "fiduciary duty" to maximize returns for retirees. It's a modern-day reenactment of the Friedman debate.
The "Invisible Hand" and the Modern Market
Friedman loved Adam Smith. Smith’s "Invisible Hand" theory suggests that by pursuing your own interest, you frequently promote that of the society more effectually than when you really intend to promote it.
Businesses create value.
They create products that solve problems.
They create paychecks that feed families.
When a tech company develops a new chip that makes computers 10% faster, they do it to beat their competitors and make a killing. But the result is that everyone has better technology. That is a social good. You don't need a "Social Responsibility" department to make that happen. You just need a competitive market.
However, the "Invisible Hand" doesn't always work perfectly. It can't handle externalities. If a chemical plant dumps waste into a river, the cost of that pollution isn't reflected in the price of their chemicals. The company makes a profit, but the community pays the price in dirty water and health problems. This is where Friedman’s "rules of the game" become the most important part of the conversation.
If the rules are weak, the pursuit of profit becomes predatory.
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Short-termism: The Real Villain?
The biggest valid criticism of the idea that the social responsibility of business is to increase its profits is the "short-termism" it encourages.
If a CEO is judged only on the next three months of earnings, they’ll make decisions that are great for the stock price today but terrible for the company’s health in ten years. They might cut R&D, fire experienced staff, or squeeze suppliers until they break. This isn't what Friedman meant by "increasing profits" in a long-term sense, but it's how it often plays out in the real world of Wall Street.
Real profit—sustainable, long-term profit—requires a healthy society. You need an educated workforce. You need functioning infrastructure. You need customers who aren't broke.
Actionable Insights for the Modern Professional
If you’re running a business or even just managing a team, you don’t have to pick a side in the Friedman vs. Stakeholder war. You just have to be honest about what you’re doing.
- Fiduciary Duty Still Exists. If you are managing someone else’s money, you have a legal and moral obligation to get them a return. Don't use their capital to fund your personal moral crusades without their buy-in.
- Identify Your Externalities. Know where your profit comes from. If it comes from making things better, great. If it comes from "externalizing" costs—like polluting or exploiting people—know that the "rules of the game" will eventually catch up with you.
- Transparency is the Only Defense. If you claim to have a social purpose, prove it. Don't hide behind vague marketing. The modern consumer has a very high "BS" detector.
- Long-Term Profit is Social Responsibility. Building a company that lasts 50 years, provides stable jobs, and creates a product people love is one of the most socially responsible things you can do. You don't need a special label for it.
The debate over the social responsibility of business is to increase its profits isn't going away. It’s a tension that exists at the heart of capitalism. We want our companies to be efficient and profitable, but we also want them to be "good." The truth is usually somewhere in the middle: a business that ignores profit will fail, but a business that ignores everything except profit will eventually be rejected by the society it depends on.
Friedman's essay wasn't a license to be a jerk. It was a warning against the confusion of roles. Let businesses be businesses, and let citizens and governments be the ones to shape the world. It’s a simple idea that turned out to be incredibly complicated in practice.
Next Steps for Deeper Understanding
To really grasp how this affects your own career or investments, you should look into the specific legal requirements for "Benefit Corporations" or B-Corps. These are companies that have literally changed their legal DNA to include social and environmental goals alongside profit. It's the most direct legal challenge to Friedman's 1970 doctrine. Also, read the original 1970 essay; it’s surprisingly short and way more nuanced than the "greed is good" caricatures suggest. Understanding the "why" behind the profit motive helps you navigate a world where everyone is trying to sell you their "purpose."