The Ethical Lacunae in Friedman's Concept of the Manager (Milton Friedman) (Critical Essay‪)‬

Milton Friedman promotes two doctrines in Capitalism and Freedom. The first is in regard to the proper role and use of corporate profits. The second is in regard to the moral foundations required for a stable society. Unfortunately, Friedman's doctrine on profit is often applied without reference to his second doctrine on ethics (James and Rassekh 2000). In a similar way, Adam Smith's economic injunctions in The Wealth of Nations are often misunderstood because the moral underpinnings for them in The Theory of Moral Sentiments are ignored. In both cases, an understanding of economic processes is weakened (Evensky 2005; Young 1997). This article analyzes the interconnections between the instrumental role of profits and the intrinsic role of morals in Friedman's model, using for its analytical framework the moral sentiments theory of Adam Smith. The article also examines whether Friedman's profit-maximization goal adequately motivates managerial activity. The key problem with Friedman's mandate on profits is that it gives rise to a fundamental inconsistency: On one level, Friedman utilizes a largely consequentialist ethic to explain how markets and economic actors behave, yet he simultaneously relies upon managers to uphold an internal ethic based on duty and virtue. The psychological dissonance created may produce both hypocrisy and inefficiency. A subtler version of Friedman's injunction on profits and the manager is warranted, in which virtue ethics might provide a meaningful approach to motivation within the firm.