Milton Friedman: The Goal of the Firm

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Milton Friedman the Goal of the Firm The three goals of the firm are to maximum market value, maximum share price, and maximum value of owner equity. Milton Friedman asserts the only responsibility of a business is to increase its profits. Friedman reasons that corporate executives are employees of the owners of the business, or the stockholders, and as such have a fiduciary duty as agents to principals. The concept of social responsibility implies something other than to increase profits and if executives spend company funds in this regard they are spending someone else's money without their consent. Friedman equates spending company money to discharge social responsibilities to a form of taxation. The idea that a corporate executive has a social responsibility in his capacity as businessman is contradictory to the goals of the firm. The concept of social responsibility implies that executives are to act in some way that is not in the interest of his employers. Friedman (1970) uses the examples of refraining from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation; making expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment; and, at the expense of corporate profits, hiring the chronically
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