Questions in Economics

Questions in Economics

  1. Milton Friedman Section

What is Milton Friedman’s view of Corporate Social Responsibility?

Concerning the role of corporations in society, Friedman adopted an ultra-liberal position. He was an enraged detractor of Corporate Social Responsibility and was strongly opposed to admitting any sort of social responsibility to businesses. He referred to Corporate Social Responsibility as a fundamental subversive doctrine in a free society.  His arguments against corporate social responsibility can be divided into two types: philosophical and economic. His philosophical argument was that only people could have responsibilities, business entitiestaken together cannot be said to have responsibilities. The economic argument was the traditional one that businessmen are no more than agents of the shareholders who ultimately employ them. In Friedman’s view, the only dutyof businessmen is to their stakeholders, and therefore he construes that any undertaking by a businessman that does not direct towards maximizing profits to the stakeholder amounts to a tax to that enterprise. Friedman is therefore contemptuous of any thought of Corporate Social Responsibility(Friedman, 1970).

Explain the macroeconomic policy of “Monetarism”

Monetarism is a school or body of economic thought that stresses the importance of the aggregate stock of money in macroeconomic relations, especially those determining quantities denominated in money terms, such as national income(Jansen, 2014, p. 99). According to proponent of Monetarism, the appropriate way to manage the economy is through maintaining as far as possible, stable prices, and the appropriate way to maintain stable prices is through ensuring that, so far as possible, the amount of money available to citizenry reflects the volume of goods and services produced by the citizenry (Letwin, 1993, p. 119). Monetarists agree that money is veil, that is, the monetary and real side of the economy is essentially separate. Hence, they agree that monetary policy should concern itself with the price level and the real economy be regulated by other policies. Monetarists also advocate for the insulation of the domestic money supply from the world economy, this they state can be achieved through floating the currency (Friedman & Friedman, 1962).

Explain the “permanent income” hypothesis

The permanent income hypothesis is one of the modernviews of consumption and was developed by Milton Friedman (Davidson, 2011, p. 44). In this hypothesis, Friedman states that today’s income is divided into two components: transitory income and permanent income. Transitory income is associated with one-shot, non-repeatable changes in current income, while permanent income was defined in terms of long term income flows that a forward looking customer can expect to receive each future period throughout his life. This hypothesis posits that household consumption is based on Permanent income, which he defines as the expected future income stream of the household. The major implication of this hypothesis is that in the face of current income variability around permanent income, consumers will seek to allocate resources in order to smooth the marginal utility of consumption relative to current income.Friedman argued that any change in permanent income will affect consumption, while changes in transitory income will have little or no effect on consumption (Davidson, 2011, p. 44).

Explain the concept of “Natural Rate of Unemployment”

The natural rate of unemployment is also referred to as the Non-Accelerating Inflation Rate of unemployment. According to Milton Friedman, the natural rate of unemployment is that unemployment rate occurring when cyclical unemployment is zero or when the economy is operating at full employment (Rossana, 2011, p. 229). It refers to the rate of unemployment in correspondence with which the jobs available are equal to unemployed workers and hence the demand for labor is equal to the supply, so that the wage rate remains constant(Caravale, 2002, p. 177). It is the sum of frictional and structural unemployment

According to Friedman, what role should the government play in economics?

According to Friedman it was of paramount importance to restrict the government role in the economy in order to control government power. Milton argued that in trying to offset economic forces, the government had become “the major source of instability”.Friedman opposed government attempts at economic leveling because such actions he believed restricted personal liberty (Friedman & Friedman, 1962). He added that a state directed economy led to totalitarianism since it took away individual choice in matters of money and property. Friedman was of the opinion that the government should be involved in only four realms of responsibility, which he outlined as military and police, public goods and negative externalities, administration of justice and finally protection of children and the mentally handicapped.

What inspired him to write “Capitalism and Freedom”?

The book capitalism and freedom has been christened as being one of the most influential writing of the 20th century as well as the 21st century. Written in 1962 it presented a case for competitive capitalism as a tool for achieving economic freedom and a necessity for political freedom. What inspired and motivated Milton Friedman to pen this book was his desire to present a case for neoliberal thought which represented his view of the world. It was his drive to see an economy which is free from government interference in order to allow for free market.

What historical context was present when he wrote this book?

The book capitalism and freedom was written in the early 1960. During this period, the United States economy was experiencing modest economic growth. Although the prevailing ideologies insisted on fiscal responsibility and limited government intervention, the American public was demanding aggressive government action to redress economic shortcomings.During this period, the United Stateseconomy experienced its lengthiestcontinuousphaseof economic expansion and growth. Inflation was stable, profits in the corporates were at a record high, while the stock market had recoveredand rebounded. However, the unemployment rate was still too high at around 5.7 percent(US History: Economics of the 1960’s).

  1. Corporate Social Responsibility Section

Definition and explanation of Corporate Social Responsibility

Corporate social responsibility is a commitment to improve community well-being through discretionary business practices and contributions of corporate resources. It is a business’ commitment to contribute to sustainable economic development, working with employees, their families, the local community, and society at large to improve their quality of life. It involves operating a business in a manner that meets or exceeds the ethical, legal, commercial, and public expectations that society has for business (Lee & Kotler, 2011, p. 1991).

Three positive attributes of Corporate Social Responsibility

Good Corporate Social Responsibility can bring to any organization a myriad of benefits. According to Keinert (2008, p. 89), these benefits can include the achievement of competitive advantage, enhanced access to market segments such as ethical consumers as well as socially responsible investors, and augmented opportunities for strategic partnerships or other alliances as major business opportunities for  corporations with peripheral constituencies. From an internal point of view, corporate social responsibilitypromotes the enhancement of labor relations and employee commitment, and the achievement of overall better financial and strategic results.

Three negative attributes of Corporate Social Responsibility

The major prevalent view held against business actively participating in social responsibility activities is expressed in Milton Friedman’s writings. Friedman stipulated that a company may participate in social responsibility activities if the marginal gains exceed the marginal costs. Other major arguments against a company becoming involved in social responsibility activities include: it violates the policy of profit maximization, and as a result stockholders will suffer, business is not directly answerableto the public, therefore, the public would have little or no control over where and how deeply a company became involved, it will increase the price of the end item, and as a result all purchasers of the end item will suffer(Anderson, 1989, pp. 11-12). Other arguments against it can include social actions cannot be measured, so why participate in them? And the government should pass the laws they want obeyed and enforce them and not expect business to go beyond the law in solving the problems of society.



Anderson, J. W. (1989). Corporate Social Responsibility: Guidelines for Top Management. ABC-CLIO.

Caravale, G. A. (2002). Equilibrium and Economic Theory. Routledge.

Davidson, P. (2011). Post Keynesian Macroeconomic Theory, Second Edition. Edward Elgar Publishing.

Friedman, M. (1970). The Social Responsibility of Business Is to Increase Its Profits. The New York Times Magazine.

Friedman, R. D., & Friedman, M. (1962). Capitalism and Freedom (2, reprint, reissue, revised ed.). University of Chicago Press.

Jansen, K. (2014). Monetarism, Economic Crisis and the Third World. New York: Routledge.

Keinert, C. (2008). Corporate Social Responsibility as an International Strategy. Springer Science & Business Media.

Lee, N., & Kotler, P. (2011). Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause. John Wiley & Sons.

Letwin, S. R. (1993). The Anatomy of Thatcherism. Transaction Publishers.

Rossana, R. J. (2011). Macroeconomics. Taylor & Francis.

US History: Economics of the 1960’s. (n.d.). Retrieved from US History: 1950-1975:

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