Dr. Sigmund Wagner-Tsukamoto is researcher in business ethics at the School of Management of the University of Leicester, UK. He holds two doctorates, one in social studies from the University of Oxford, UK, and one in economic studies from the Catholic University of Eichstaett, Germany. He has widely published on green consumerism and institutional economic issues that concern organization theory and business ethics theory. His publications include the books Understanding Green Consumer Behaviour (Routledge, 1997 & 2003) and Human Nature and Organization Theory (Edward Elgar, 2003).
Abstract
The paper reconstructs in economic terms Friedman’s theorem that the only social responsibility of firms is to increase their profits while staying within legal and ethical rules. A model of three levels of moral conduct is attributed to the firm: (1) self-interested engagement in the market process itself, which reflects according to classical and neoclassical economics an ethical ideal; (2) the obeying of the “rules of the game,” largely legal ones; and (3) the creation of ethical capital, which allows moral conduct to enter the market process beyond the rules of the game. Points (1) and (2) position the Friedman theorem in economic terms while point (3) develops an economic revision of the theorem, which was not seen by Friedman. Implications are spelled out for an instrumental stakeholder theory of the firm.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Birsch, D.: 1990, ‘The Failure of Friedman’s Agency Argument’, In J. R. Desjardins and J. J. McCall (eds.), Contemporary Issues in Business Ethics (Wadsworth Publishing, Belmont Cal) pp 28–36.
Buchanan, J. M.: 1991, The Economics and the Ethics of Constitutional Order (University of Michigan Press, Ann Arbor, Mich).
Brennan, G. and J. M. Buchanan: 1986, The Reason of Rules. Constitutional Political Economy (Cambridge University Press, Cambridge).
Buono, A. F. and L. T. Nichols: 1990, ‘Stockholder and Stakeholder. Interpretations of Business’ Ethical Role’, In W. M. Hoffman and J. M. Moore (eds.), Business Ethics (McGraw-Hill, New York) pp 170–175.
Carroll, A. B.: 1991, ‘The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Corporate Stakeholders’, Business Horizons 34(July–August), 39–48.
Chryssides, G. D. and J. H. Kaler: 1993, An Introduction to Business Ethics (Thompson Learning, London).
Desjardins, J. R.: 1993, ‘Virtues and Business Ethics’, In G. D. Chryssides and J. H. Kaler (eds.), An Introduction to Business Ethics (Thompson Learning, London) pp 136–142.
Desjardins, J. R. and J. J. McCall: 1990, ‘An Analysis of Friedman’s “Social Responsibility” Article’, In J. R. Desjardins and J. J. McCall (eds.), Contemporary Issues in Business Ethics (Wadsworth Publishing Company, Belmont, Cal) pp 12–21.
Donaldson, T. and L. E. Preston: 1995, ‘The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications’, Academy of Management Review 20(1): 65–91.
Evan, W. M. and R. F. Freeman: 1995, ‘A Stakeholder Theory of the Modern Corporation: Kantian Capitalism’, In Hoffman W. M. and R. E. Frederick (eds.), Business Ethics Readings and Cases in Corporate Morality (McGraw-Hill, New York) pp 145–154.
Freeman R. E. (1984) Strategic Management: A Stakeholder Approach. Pitman, Boston
Freeman, R. E.: 1997, ‘A Stakeholder Theory of the Modern Corporation’, In T. L. Beauchamp and N. E. Bowie (eds.), Ethical Theory and Business (Prentice-Hall, Upper Saddle River, N.J) pp 66–76.
Freeman, R. E. and W. M. Evan: 1990, ‘Corporate Governance: A Stakeholder Interpretation’, Journal of Behavioral Economics 19(4): 337–359.
Freeman, R. E. and D. Reed: 1983, ‘Stockholders and Stakeholders: A New Perspective on Corporate Governance’, In C. Huizinga (eds.), Corporate Governance: A Definitive Exploration of the Issues (UCLA Extension Press, Los Angeles).
Friedman M. (1953) Essays in Positive Economics. The University of Chicago Press, Chicago, Ill
Friedman, M.: 1962, Capitalism and Freedom (The University of Chicago Press, Chicago).
Friedman, M.: 1970/1993, ‘The Social Responsibility of Business is to Increase its Profits,’ in G. D. Chryssides and J. H. Kaler (eds.), An Introduction to Business Ethics (London, Thomson Learning), 249–254. First published in New York Times Magazine. 13 September 1970, pp. 32–33, 122–126
Friedman, M: 1989, ‘Freedom and Philanthropy: An Interview with Milton Friedman’, Business and Society Review 71(Fall): 11–18.
Goodpaster, K. E.: 1991, ‘Business Ethics and Stakeholder Analysis’, Business Ethics Quarterly 1(1): 53–73.
Goodpaster, K. E. and J. B. Matthews, Jr. 1993, ‘Can a Corporation Have a Conscience’? In G. D. Chryssides and J. H. Kaler (eds.), An Introduction to Business Ethics (Thomson Learning, London) pp 266–279.
Hayek F. (1960) The Constitution of Liberty. Routledge & Kegan Paul, London
Hayek, F.: 1979, Law, Legislation and Liberty: The Political Order of a Free People, Vol 3. (Routledge & Kegan Paul, London).
Hoffman, W. M.: 2002, ‘Business and Environmental Ethics’, In L. P. Hartman (ed.), Perspectives in usiness Ethics (McGraw-Hill, Boston) pp 715–721.
James, H. S. and F. Rassekh: 2002, ‘Smith and Friedman on the Pursuit of Self-interest and Profit’, In L. P. Hartman (ed) Perspectives in Business Ethics (McGraw-Hill, Boston) pp 248–256.
Levitt, T.: 1958, ‘The Dangers of Social Responsibility,’ Harvard Business Review (September–October), 41–50.
Mandeville, B.: 1988, The Fable of the Bees or Private Vices, Publick Benefits (Indianapolis, Liberty Fund).
Mulligan, T.: 1986, A Critique of Milton Friedman’s Essay “The Social Responsibility of Business is to Increase its Profits”, Journal of Business Ethics 5: 265–269.
Mintzberg, H.: 1995, ‘Who Should Control the Corporation?’, In W. M. Hoffman and R. E. Frederick (eds.), Business Ethics. Readings and Cases in Corporate Morality (McGraw-Hill, New York) pp 205–218.
Novak, M.: 1996, Business as a Calling (Free Press, New York).
Primeaux, P. S. M.: 2002, ‘Maxmizing Ethics and Profits’, In L. P. Hartman (ed.), Perspectives in Business Ethics (McGraw-Hill, Boston) pp 242–247.
Smith, A: 1976, An Inquiry into the Nature and Causes of the Wealth of Nations, 2 Vols. (Clarendon, Oxford).
Smith, N. C.: 1990, Morality and the Market (New York, Routledge).
Smith, N. C.: 2002, ‘Arguments For and Against Corporate Social Responsibility’, In L. P. Hartman (ed.), Perspectives in Business Ethics (McGraw-Hill, Boston) pp 231–236.
Steiner, G. A. and J. F. Steiner: 1994, Business, Government and Society. A Managerial Perspective (McGraw-Hill, New York).
Stewart, D.: 1996: Business Ethics (New York, McGraw-Hill).
Stone, C. D.: 1995, ‘Why Shouldn’t Corporations Be Socially Responsible?’, In W. M. Hoffman and R. E. Frederic (eds.), Business Ethics. Readings and Cases in Corporate Morality (McGraw-Hill, New York) pp 141–145.
Wagner-Tsukamoto, S. A.: 2003, Human Nature and Organization Theory. On the Economic Approach to Institutional Organization (Edward Elgar, Cheltenham).
Wagner-Tsukamoto, S. A.: 2005, ‘An Economic Approach to Business Ethics: Moral Agency of the Firm and the Enabling and Constraining Effects of Economic Institutions and Interactions in a Market Economy’, Journal of Business Ethics 60: 75–89.
Wagner-Tsukamoto, S. A. forthcoming, ‘An Institutional Economic Reconstruction of Scientific Management: On the Lost Theoretical Logic of Taylorism,’ Academy of Management Review
Wagner, S. A.: 1997, Understanding Green Consumer Behaviour (Routledge, London).
Weiss, J. W.: 1994, Business Ethics. A Managerial, Stakeholder Approach (Wadsworth Publishing, Belmont, Cal).
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Wagner-Tsukamoto, S. Moral Agency, Profits and the Firm: Economic Revisions to the Friedman Theorem. J Bus Ethics 70, 209–220 (2007). https://doi.org/10.1007/s10551-006-9106-5
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10551-006-9106-5