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Milton Friedman on Corporations
Libertarian Economist
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1970s: Companies exist only to maximize share prices
Thanks to Milton Friedman, and other titans, the goals of large companies began to change in the 1970s and early 1980s. The notion they espoused--that a company exists only to maximize its share price--became a gospel in business
schools and boardrooms around the country. Companies were pushed to adopt shareholder value as their sole measuring stick. Hostile takeovers, shareholder lawsuits, and later activist hedge funds served as prompts to ensure that managers
were committed to profitability at all costs. On the flip side, CEOs were granted stock options for the first time that wedded their individual gain to the company's share price.
The ratio of CEO to worker pay rose from 20 to 1 in 1965 to 271 to 1 in 2016. Benefits were streamlined and reduced and the relationship between company and employee weakened to become more transactional.
Source: The War on Normal People, by Andrew Yang, p. 13
, Apr 2, 2019
1970s: Companies exit only to maximize share prices
Thanks to Milton Friedman, and other titans, the goals of large companies began to change in the 1970s and early 1980s. The notion they espoused--that a company exists only to maximize its share price--became a gospel in business schools and boardrooms
around the country. Companies were pushed to adopt shareholder value as their sole measuring stick. Hostile takeovers, shareholder lawsuits, and later activist hedge funds served as prompts to ensure that managers were
committed to profitability at all costs. On the flip side, CEOs were granted stock options for the first time that wedded their individual gain to the company's share price.
The ratio of CEO to worker pay rose from 20 to 1 in 1965 to 271 to 1 in 2016. Benefits were streamlined and reduced and the relationship between company and employee weakened to become more transactional.
Source: The War on Normal People, by Andrew Yang, p. 13
, Apr 2, 2019
Free markets are excellent at keeping businesses in line
As economist Milton Friedman states below, free markets are an excellent force to keep businesses in line.People and markets aren't perfect. There IS a role for government to keep companies and people from defrauding one another.
But Friedman explained why we should have less faith in government control and more faith in the free market in his 1962 book "Capitalism and Freedom":
"The consumer is protected from coercion by the seller because of the presence of other sellers with whom he can deal. The seller is protected from coercion by the consumer because of other consumers to whom he can sell.
The employee is protected from coercion by the employer because of the other employers for whom he can work, and so on. And the market does this impersonally and without centralized authority."
Source: Last Line of Defense, by Ken Cuccinelli, p.235-236
, Feb 12, 2013
Page last updated: Apr 30, 2021