Milton Friedman on Business, profit, and social responsibility
The basic justification for a free enterprise system is that the possibility of profit will lead private individuals seeking their own interests to promote the social interest by producing only those products for which people are willing to pay and producing them at lowest cost. But a profit system can work only if it is also a profit and loss system, only if projects that do not pay are not carried out, and when enterprises make a mistake about a project, they must bear the consequences. If government bails enterprises out, either in advance on the expectation of a loss, or after the event when a loss has been realized, the fundamental justification of a free enterprise system is destroyed.
Context. From a statement he sent to Senator William Proxmire’s Joint Economic Committee in December 1972 for its hearings on the supersonic transport (SST). The Senate had voted in March 1971 to halt federal funding of an American SST, and the hearings considered whether to revive it. He is explaining why he opposes subsidizing the SST.
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Checked against the sourceThe wording was checked against the work itself.
Cite this passage
Milton Friedman, “Statement on the SST” (Letter to Senator William Proxmire, chairman of the Joint Economic Committee, dated December 11, 1972, submitting a statement for the record of the committee’s hearings on the supersonic transport; printed in full in the Congressional Record, Senate, January 11, 1973, p. 796, inserted by Senator Proxmire., 1972), Congressional Record, January 11, 1973, p. 796. https://miltonfriedman.org/quotes/profit-system-must-be-profit-and-loss-system-1972
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He also said
If you are going to get the profits, you have to take the losses. I have always said the essence of a free-market system, which tends to be called a profit-and-loss system, is that the loss component is more important than the profit component. You need the discipline of the loss in order to keep the system going.
Context. From an August 1998 interview in Barron’s, reprinted in the Hoover Digest as “Mr. Market.” Discussing the 1995 U.S.-led rescue of Mexico, which he says bailed out New York bankers who had lent there, and which he opposed.
Mr. MarketInterview, 1998, Interview in Barron’s, August 24, 1998 (the questioner is identified only as Epstein); reprinted in Hoover Digest 1999 No. 1Checked against the sourceRead the transcriptIn my opinion, the strongest argument for free enterprise is that it prevents anybody from having too much power, whether that person is a government official, a trade union official, or a business executive. It forces them to put up or shut up. They either have to deliver the goods, produce something that people are willing to pay for, or willing to buy, or else they have to go into a different business.
Context. In the panel discussion that closes the episode, after saying he is pro-free enterprise rather than pro-business. These are the last words of the discussion.
I believe that the only way to make a major improvement in our educational system is through privatization to the point at which a substantial fraction of all educational services are rendered to individuals by private enterprises. Nothing else will destroy or even greatly weaken the power of the current educational establishment—a necessary precondition for radical improvement in our educational system. And nothing else will provide the public schools with the competition that will force them to improve in order to hold their clientele.
Context. From a February 1995 Washington Post article arguing that American elementary and secondary schooling must be radically reconstructed by privatizing much of it, through a universal voucher that lets parents choose their children’s schools, a plan he first proposed in 1955. Earlier in the article he names the school establishment, reinforced by the two national teachers’ unions, as the main obstacle to vouchers.
Public Schools: Make Them PrivateColumn, 1995, The Washington Post, February 19, 1995; reprinted in full in the Congressional Record, Extensions of Remarks, March 28, 1995, pp. 9551 to 9552 (E703 to E704 in the daily edition), inserted by Representative Philip M. Crane., Congressional Record, March 28, 1995, p. 9552
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