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It's easy to think that our continuing impasses over the federal budget stem from deep differences in principle between conservatives and progressives over the role of capitalist enterprises in our society. Progressives favor substantial constraints, through taxation and other sorts of regulation, whereas conservatives think that, as Milton Friedman put it in his classic "Capitalism and Freedom," "there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits." But if we look more deeply into Friedman's view, the difference between his conservative economics and progressive views shrinks considerably.
Friedman made it clear that Adam Smith's "invisible hand" is attached to the body politic.
To see why, we can start with the conclusion of the passage (omitted when I quoted it above) where Friedman says that the only social responsibility of business is "to increase its profits." The full text reads: "there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."
This qualification acknowledges a key restriction on the maximization of profit. More important, it commits Friedman to the principle that there can be restraints on the capitalist system that are not self-imposed but rather imposed by the society that employs this system for its own purposes.This principle is also implicit in Friedman's claim that if a business used any of its profits for social goods, it would be usurping the role of the political system.
It follows that, on Friedman's own account, capitalism is not an economic system that operates independently of the political system in which it is embedded. It is a creature of that system, which has goals (of morality and social responsibility, for example) that go beyond the profitable exchange of goods. Therefore, the owners of businesses must accept governmental restrictions on their profit-making for the sake of overriding social values.
It might seem that this activist role for government flies in the face of Friedman's libertarian insistence on the magic of Adam Smith's "invisible hand" to produce "public goods from private vices," without political control. In fact, however, Friedman makes it clear that the invisible hand is attached to the body politic. Here is how he introduces Smith's famous phrase: "It is the responsibility of the rest of us to establish a framework of law such that an individual in pursuing his own interest is, to quote Adam Smith again, 'led by an invisible hand to promote an end which was no part of his intention.'"The "invisible hand," therefore, operates for the public good only because it is directed by the social values that our political system enacts by its laws. These values shape the function of the capitalist economic system.
So far, it might seem that Friedman envisages only minimal moral constraints on business activity. But in fact he acknowledges the need for a variety of government interventions to keep capitalism on the right track. These include not only laws against deception and fraud, but also control of the money supply, prevention of monopolies and compensation to those involuntarily harmed by pollution and similar "neighborhood effects" of business activities. Most strikingly, Friedman proposed a "negative income tax" to eliminate poverty. Roughly, his idea was to give all those reporting income below the poverty line a rebate that would bring them at least up to the line. Our current earned income tax credit — supported by both Richard Nixon and Ronald Reagan — is an application of the idea but restricted to those who are employed. Friedman, a major intellectual hero of the right, supported a program most current conservatives would denounce as "socialism."
Friedman was, of course, by no means a progressive (he opposed Social Security, corporate and graduated income taxes, and federally supported interstate highways and national parks). But his strong differences with progressives derive primarily from different views about our precise economic situation and the indirect effects of various governmental programs. Today, there is no effective support for eliminating capitalism, and even most progressives agree with Friedman's core position: they think that capitalism is an essential engine of economic production, but one that requires significant regulation to serve the overall needs of our society.
Our current political impasse over economic issues has arisen because so many conservatives have moved well beyond Friedman's position. They object to almost all regulation of business, reject the need for any governmental solutions to social problems, and often seem to insist on judging corporate success in terms of short-term profits. But whereas Friedman offers a plausible theoretical case for capitalism, there doesn't seem to be any intellectually respectable support for current conservatives' much more radical understanding of the system.
A move back to Friedman would not eliminate the substantial differences between conservatives and progressives. But it would allow a profitable political discussion of these differences, focusing on the specific sorts of regulation that our current economic system requires. Such discussions — about "how much" rather than "whether" — allow for the compromises usually required for effective political action. Faced with the disruptions of government shut-downs or defaults, progressives should all urge their conservative friends to reread Milton Friedman.
Gary Gutting is a professor of philosophy at the University of Notre Dame, and an editor of Notre Dame Philosophical Reviews. He is the author of, most recently, "Thinking the Impossible: French Philosophy since 1960," and writes regularly for The Stone. He was recently interviewed in 3am magazine.
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