Milton Friedman on Business, profit, and social responsibility
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.
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Milton Friedman, “Mr. Market” (Interview in Barron’s, August 24, 1998 (the questioner is identified only as Epstein); reprinted in Hoover Digest 1999 No. 1, 1998). https://miltonfriedman.org/quotes/profits-take-losses-loss-more-important-1998
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He also said
Social Security, as we call it, is a combination of two separate programs, neither of which would have a chance of being enacted on its own. One program is a program of a flat-rate tax on wages up to a maximum: a regressive tax imposed at one of the worst places in the economic structure, where it introduces a gap between what the worker receives and what it costs the employer. You cannot conceive of that tax being enacted by itself as part of a financing program. The second component is a system of payments of subsidies, which, again, I cannot believe could have been enacted by itself. It is a system in which the amount a person receives depends on a whole variety of circumstances, some of which may be relevant and some of which may not be relevant to what you would like to have a subsidy program do. But you would never enact a subsidy program in which the largest subsidies go to the people who have earned the highest incomes. Yet when you tie the two together you have a sacred cow. I have always said it is one of the greatest marketing miracles of this century.
Context. From an August 1998 interview in Barron’s, reprinted in the Hoover Digest as “Mr. Market.” Asked whether the United States should privatize Social Security as Chile had done.
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 transcriptThe 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.
Statement on the SSTLetter, 1972, 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., Congressional Record, January 11, 1973, p. 796Checked against the sourceRead the originalAlthough I wish the anarchists luck, since that’s the way we ought to be moving now. But I believe we need government to enforce the rules of the game. By prosecuting antitrust violations, for instance. We need a government to maintain a system of courts that will uphold contracts and rule on compensation for damages. We need a government to ensure the safety of its citizens—to provide police protection. But government is failing at a lot of these things that it ought to be doing because it’s involved in so many things it shouldn’t be doing.
Interview with Milton FriedmanInterview, 1973, Playboy, February 1973; reprinted in There’s No Such Thing as a Free Lunch (Open Court, 1975), p. 37Checked against the sourceFind the book
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