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Milton Friedman

AUTHOR: Robert Marks   DATE: 13.12.06   ISSUE 2, 2006

“There’s no such thing as a free lunch.” Many of the obituaries and encomiums published in the days since the death of Milton Friedman in November have wrongly made the claim that he coined the phrase. There is no doubt that he, together with science fiction writer Robert Heinlein (1966) popularized it, indeed, according to Lederer (1989), in 1977 Friedman told members of the Knesset Finance Committee in Jerusalem, “There is no such thing as a free lunch. That is the sum of my economic theory. The rest is elaboration.”

He had used it in a 1973 Playboy interview that appears in his 1975 book of that name. The aphorism, however, had appeared in print in the San Francisco News as early as June 1, 1949, in an article, “The Fable of the King and All the Wise Men — or Economics in Eight words,” by Walter Morrow, according to Safire (1994). The eight words? “There ain’t no such thing as free lunch.” The lack of an indefinite article before “free lunch” is consistent with the folk wisdom that the saw harks back to the nineteenth century, when pubs would advertise “free lunch” to attract patrons; but just try to eat without buying a drink: TANSTAAFL!

“There is no such thing as a free lunch" is a phrase popularised by Milton Friedman.

Illustration: Gregory Baldwin

The aphorism is a reminder, if needed, that there is seldom something for nothing, as epitomised in the joke about Milton Friedman and his acolyte walking down the street.

“Look,” says the acolyte, “there’s a $100 bill in the gutter!”

“Impossible,” says Milton, “someone would have picked it up already”. Of course, the value of the money is clear, and accrues to the possessor.

For an equivocal lunch, consider the cartoon by Sam Gross in the New Yorker of the two birds perched on a Bird Sanctuary sign in the woods. “What’s the catch?” says one. Obviously a Friedmanite.

I leave to others, most notably Sam Brittan and Niall Ferguson, to remember Milton Friedman the man and the monetarist, and Peter Swan to muse on the political and reform impacts of Friedman’s trenchant arguments for small government, impacts which continue to affect us all, especially but hardly exclusively in Anglophone countries. I want to touch on two areas of Friedman’s work that have paralleled my own.

In a noted passage in his 1962 book, Capitalism and Freedom, Friedman argued (p.133), “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine.” He extended this argument in a long piece in the New York Times Sunday Magazine in 1970, and confirmed that his views had not changed thirty years later (GSB, 2000), when he noted that, although the 1970 article is much used in Business Ethics courses, it actually addresses issues of social responsibility of business, not ethics. The article is, as Friedman also noted in 2000, an extreme view, from the right, “Only people, not businesses, have ethics”.

His general view, unchanged across forty years, was that, “A corporation has an obligation to its owners and stockholders to make as much profit as it can while not violating its owners’ ethical concerns [or] practicing deception or fraud.”

Friedman’s views pack a punch because of the eloquence of his writing.

As for the firm’s employees, including its managers, “If I’m employed in business that I think is unethical, I have a clear choice. I can get out of that business and find something else to do. It doesn’t seem to me it’s ethical to do unethical things [just] because the business can let me do [them]” (GSB, 2000). That is, of Hirschman’s trio of exit, voice, and loyalty (Hirschman 1970), the employee has a choice; but if voice is ineffective, and loyalty is unacceptable to the employee, then the choice must be exit.

I have been using Friedman’s quotes on the social responsibility of business for almost thirty years in various subjects/courses at AGSM, as a means of stimulating thought and discussion, which they always provoke. In a course — Business Ethics — which some students apparently feel is superfluous to their studies of option pricing, market segmentation, and oligopoly theory, Friedman’s views pack a punch because of the eloquence of his writing: indeed, it has proved difficult to find an alternative view arguing for stakeholder theory and broad corporate responsibility that is as well expressed. One does not have to agree with Friedman’s view of the firm’s responsibility to admire his rhetorical accomplishments.

Professor Robert Marks has been using Friedman’s quotes on the social responsibility of business for almost thirty years in various subjects and courses at AGSM.

Photo: Professor Robert Marks

Friedman’s views on business ethics and corporate social responsibility are consistent with his strong belief in the intelligence and responsibility of the individual. Not for him the equivocations of the psychologist or the behaviorist. The individual, he believes, can be relied on to behave in an informed, rational and self-interested way. And via the voluntary exchange of the market, Adam Smith’s invisible hand will improve the lot of all, the public interest.

His self-avowed libertarian, small-government beliefs inform his commitment to a voluntary army (no state-decreed conscription) and to ending the prohibition on the manufacture, sale, purchase, possession or use of illicit drugs. He was not “a zero government person:” he saw a real role for government, to prevent people from harming others and to uphold the law.

Following Mill (1909), he said that government never has any right to interfere with an individual for that person’s own good. This belief informed his advocacy of the legalization of drugs: his adamantine conviction that it was morally wrong for government to attempt to change the individual’s drug-taking behaviour “for his own good”. Only secondarily did the costs and benefits of ending the prohibition matter to him: he argued that eliminating the many costs associated with the ineffective prohibition would vastly outweigh any costs associated with ending the drug war. (He did not advocate open slather, just the level of regulation afforded to the legal drugs of alcohol and tobacco.)

Friedman’s views on business ethics and corporate social responsibility are consistent with his strong belief in the intelligence and responsibility of the individual.

Independently, coming from a utilitarian, not a libertarian, approach, while a graduate student at Stanford, I reached similar conclusions to Friedman’s about drug legalization. In a series of papers (Marks 1974, Marks 1991, Marks 2002), I have argued against the prohibition, have estimated the cost of the existing policies in the U.S. and Australia, and the benefits of reform. There have been some advances, usually on account of the public-health risks of shared needles, with needle-exchange schemes and the legal injecting room here in Sydney. But the political resistance against these small steps, even in the face of the AIDS/HIV pandemic, is great, and persistent.

In the early ’nineties, I corresponded with Milton Friedman, who was kind enough to send me a glowing testimonial praising several of my publications. I never met him.

References
Brittan, Samuel, Iconoclastic economist who put freedom first, Financial Times, p.9, November 17, 2006.

Dolan, Edwin G., TANSTAAFL, the economic strategy for environmental crisis, New York, Holt, Rinehart and Winston, 1971.

Ferguson, Niall, Friedman is dead, monetarism is dead, but what about inflation? The Daily Telegraph, London, 19/11/2006, accessed 21/11/06,
http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2006/11/19/do1904.xml,

Friedman, Milton. Capitalism and Freedom, Chicago: U. Chicago Press, 1962.

Friedman, Milton, The social responsibility of business is to increase its profits, New York Times Magazine, September 13, 1970.

Friedman, Milton, There's No Such Thing As A Free Lunch, LaSalle, Ill.: Open Court, 1975.

GSB, 75th Anniversary Celebration: Panel on An Ethic for the New Global Economy, Stanford Graduate School of Business, 2000. (an audio file as well as transcripts) accessed 21/11/2006, http://www.gsb.stanford.edu/news/headlines/globalethic.shtml

Heinlein, Robert A., The moon is a harsh mistress, Worlds of If, December 1965 – April 1966, later published as a book by Berkley Medallion, New York, in 1968.

Hirschman, Albert O., 1970, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. Cambridge, MA: Harvard University Press.

Lawrence, Michael, and Norman, Geoffrey, interview Milton Friedman, Playboy, February, 1973.

Lederer, Richard, On Language; Haunted Words, The New York Times, 3 September 1989.

Marks, R.E. (1974) The heroin problem: policy alternatives in dealing with heroin use,
Journal of Drug Issues, 4(1): 69-91, (Winter).

Marks, R.E. (1991) What price prohibition? An estimate of the costs of Australian drug policy, Australian Journal of Management, 16(2): 187-212, (December).

Marks R.E. (2002), Direct and derived policies: illicit drug use and greenhouse gas emissions in Australia, Journal of Comparative Policy Analysis: Research and Practice, 4(1): 51-74, March.

Mill, John Stuart Autobiography, Essay on Liberty, New York, P. F. Collier & Son.

Safire, William, On Language: Return of the Mondegreens, The New York Times, 23 January 1994.

Swan, Peter, Friedman’s ideas changed our world for the better, Australian Financial Review, P.63, November, 20. 2006.

Trebach, Arnold, Zeese, Kevin B., Friedman, M., Friedman and Szasz on Liberty and Drugs: Essays on the Free Market and Prohibition, Washington, D.C., Drug Policy Foundation Press, 1992. For an extract from the book (a 1991 interview with Friedman on drug policy in general and the drug war in particular that appeared on U.S. public television), see http://www.druglibrary.org/schaffer/Misc/friedm1.htm, accessed 21/11/06