Over at the Latin lovers collective David has been trying to fathom why anyone would call Milton Friedman a "liberal". I responded with a long comment that really deserves to be a post of its own on my blog...

See, I actually think Milt is much misunderstood and misrepresented. Just like Smithy. I've seen him make the "claim" that a company's only duty is to create profit for its shareholders. And there's a but. He is talking about the sole legal obligation, indeed the founding rationale, of the law that created incorporated companies in the US.

When incorporation was first enshrined in US law it was in response to the sort of abuses that marked out things like the South-Sea Bubble in the UK. Investors would be conned into parting with their money and then the merchant adventurer would go off and do what he pleased with their money. The same happened in the early US and so they created a legal framework that was solely intended to protect the stockholder from the conmen that sought to part them from their money - business could not get investors without that certainty that if they clubbed together to form a corporation their interests would be legally protected.

His line is actually a philosophical one that a corporation has no moral conscience, that it's not really a "person" - I get the impression he doesn't like the later case law in the late c19th US that made a corporation into a legal person. But, he says, those people who go to make up a corporation, employees, managers and most importantly stockholders do have moral consciences and crucially that it's the process of making money that allows them to exercise that moral conscience for good.

I don't think that's a bad way to look at it actually. We occasionally, in the Oxfordshire Social Enterprise Forum, have to define "social enterprise', and lots of people say such is a "not for profit company". But a preferred phrase amongst social enterprise "practitioners" is that it is a "more than profit company". Profit has become in some circles a dirty word. But Friedman's line, and that of social entrepreneurs, is that it's what you do with that profit that could be dirty or could be good. In Friedman's case, in US law, the point is that it is simply not up to the corporation itself to decide for the stockholders what to do with that profit, for good or bad. Every corrporate entity, in order to justify the trust that investors and members put into it, must make a profit to be able to carry on trading, but what those "real people" involved decide to do with their profit is what counts.

For me though, it was "Free to Choose" that made me think differently of Milt. To me before then he was the academic heavyweight that gave justification to some of the worst aspects of Thathcerism. But then I read him describe how people could take control for themselves. His example was education. He suggested, for example, that something as precious as the education of our children should not be left to the state, and advocated parents and teachers getting together and forming PTA co-operative schools to put them in control locally.

And this is Adam Smith's line as well in my opinion. He said that the state should get involved, amongst other things, when something needed doing that was too big for a person or small group of associated people to arrange for themselves. And I would say that the whole story of the twnetieth century welfare state has been usurping the right, and ability, of groups of people to get on and arrange such things for themselves or amngst themselves. As John Howson reminded us when we had that consultation on the public services policy paper in the Town Hall in Oxford, state schools are legally merely the "default" option. The obligation legally is on parents to ensure their children are educated, and they are allowed to go private, to home-school, whatever, but that the state provides a fall-back. But the way state education has developed in this country at least we have had our minds numbed to the idea that there are other options. That is what one could describe as enslavement by conformity.

I believe there are other areas where Milton Friedman has been done a disservice by his connection with Reaganomics and Thatcherism. He does change his mind. But those who took his ideas and made them their political ideology don't like to hear that. Monetarism is a case in point. Friedman has had a long standing philosophical problem with fiat money. I think he's really a "hard money" advocate - one who believes that stable money means something still backed with a relatively fixed amount of some precious specie such as gold. His adaptation of this to the inflationary pressures and policies of the seventies was to advocate tight control of fiat money which became the mantra of the political monetarists - they even made a song out of it to educate the great British unwashed in the late seventies - "We'll count our blessings if we apply/Tight control to our money supply". But since then Friedman has said that if he were to go through it all again he probably would not have placed such a heavy emphasis on control of money supply.