Is Economic Familiarity a Necessary Prerequisite for Understanding Milton Friedman’s View of Shareholder
Primacy? Reflections on a Classroom Exercise
Anthony J. Evans
ESCP Business School, London, UK
Volume 19: 2024, pp. 00-00; ABSTRACT
This article provides an overview of a classroom exercise based on Milton Friedman’s
infamous declaration that “the social responsibility of business is to increase its profits.” Despite
their familiarity with both the phrase and Milton Friedman as an economist, a notable proportion of
surveyed students adopted a “straw-man” understanding of Friedman’s intended meaning. To
correct this, students were tested on their knowledge of three key concepts—methodological
individualism, principal-agent problems, and economic calculation—and then assigned
supplementary readings. The result was an increase in their agreement with the Friedman quote. The
exercise also demonstrated that not all profit is the same, and provided students with materials to
help them understand the differences among economic, sustainable, and wealth-creating profit.
Instructors can use these resources to ensure that their own classroom discussions are based on
sound economic foundations.
Keywords: corporate social responsibility, methodological individualism, principal agent
problems, stakeholder theory.
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