Economists are full of shit

Quoting Gitonga

But instead we take advice from people who've never even started their own business on how to govern the whole country?

As an economics major myself, I can tell you with certainity that running a business is NOTHING like running an economy. I understand and somewhat agree that economists rarely have practical experience in the field, because there is none for us to acquire. We do not have labs where we can test certain policies. We only have history, and as you have probably already realized, history is not really the best tool for us. Policies that seemed great 30 years ago may now be trash.
Another reason for why economists may be perceived as doing a bad job is due to the nature of the economy itself. Economies are insanely complicated, so we must take many variables for granted and creat core ideas, such as that individuals are always maximizing, which in turn may even be wrong.

My point is that the economy is not as simple as it seems. It requires a lot of time and patience, disciplines that may outlast even the greatest entrepreneurs. If you jump the gun as an entrepreneur, you may loose your business. However, if you jump the gun as an economist, many lives may be destroyed. Cut us some slack, read about the basics of economics, such as inflation and interest rates and as long as we don´t get a pandemic every year, you have nothing to worry about.
Hope this helped!

Quoting Alejandro

you have nothing to worry about.

But against those who warned, most were convinced that banks knew what they were doing. They believed that the financial wizards had found new and clever ways of managing risks. Indeed, some claimed to have so dispersed them through an array of novel financial instruments that they had virtually removed them. It is difficult to recall a greater example of wishful thinking combined with hubris. There was a firm belief, too, that financial markets had changed. And politicians of all types were charmed by the market. These views were abetted by financial and economic models that were good at predicting the short-term and small risks, but few were equipped to say what would happen when things went wrong as they have. People trusted the banks whose boards and senior executives were packed with globally recruited talent and their non-executive directors included those with proven track records in public life. Nobody wanted to believe that their judgement could be faulty or that they were unable competently to scrutinise the risks in the organisations that they managed. A generation of bankers and financiers deceived themselves and those who thought that they were the pace-making engineers of advanced economies...

So in summary, Your Majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.

What the British Academy Review answered to the UK's Queen Majesty when she asked them "How did no one know the financial crisis would happen?".

Only drivers know about roads, civil engineers are full of shit.

And I can prove it because a bridge fell down once.

Drivers never crash, and entrepreneurs never go bankrupt.

Reply to Gitonga

Economists are full of shit

Yeah, they are. And so are you and so am I and so it goes with all the humans on the planet.'

Everything we eat turns to shit.

The economy is NOT run by economists. There are myriad forces at work in making (or allowing) the economy to function...and your views of the situation are, to be charitable, naive.

Reply to fdrake
We believe that we understand the past and think the same about the future. The precautions that we take are all based on the past. You never think that the river will flood past the mark, even if had flooded past many other marks. That is how we think, sadly

Quoting Gitonga

Instead of the economy being run by economists

Which actually they don't run.

Quoting Gitonga

we should ask entrepreneurs how to run the economy especially those from poor backgrounds because they'd know what needs the most priority in terms of how to succeed financially.

Entrepreneurs are far more in charge of the economy than economists. Although the majority are likely from middle class background with good education (the school dropout billionaires are few).

Quoting Gitonga

But instead we take advice from people who've never even started their own business on how to govern the whole country?

You confuse the economy here with government policies. Government economic policy is the small pond where economists cackle to each other. Even the economists in central banks aren't the ones calling the shots behind closed doors. Reality check: the economy isn't run by the government in Western countries. China is the example of basically fascism where the government puts down just where the economy will go, but not the West.

Economists don't run the economy just as sociologists don't run the society.

Quoting Gitonga

summary there should be no "economist" that hasn't first started their own business that isn't a consultancy.

I get your point, but don't get lost in the 'all people are bad' dichotomy. There are plenty of business men who have failed and are working in Gov't in their respective fields (some are indeed bad for the country). Kind of like the football coach who got cut from his team when he played. Or the music teacher who can't play. Does that make them good or bad teachers and coaches? Depends. Some people who are exceptionally good at their craft make not so good or even lousy teachers and vise versa. I've seen it.

The other questions relate to people who are successful in private sector and whether that always translates to success in the public sector? And/or those in the public sector having had the political experience, does that always guarantee success?

Perhaps the truly great one's learn the rules, then know how to break some of them, for the benefit of all (not at the expense of others and benefit of few).

Quoting Alejandro

I can tell you with certainity that running a business is NOTHING like running an economy

Ok, then what is the difference?

Quoting Alejandro

Economies are insanely complicated, so we must take many variables for granted and creat core ideas, such as that individuals are always maximizing, which in turn may even be wrong.

Agreed. Economics is very far reaching, particularly global economics. I remember in college reading Milton Friedman's Free to Choose and realized how sensitive economics can be... . It's certainly a far cry from someone opening up a service-economy and/or retail type establishment with a business loan then goes bankrupt a few years later. When you have bookkeepers and tax lawyers, there's only very little one can learn from that.

Quoting Frank Apisa

Everything we eat turns to shit.

Which turns to fertilizer. Which in turn grows more food. Ergo, buying groceries is a scam. :wink:

Quoting Alejandro

You never think that the river will flood past the mark, even if had flooded past many other marks. That is how we think, sadly

It's a rather ironic example. Considering that peak rainfall and flood risk is higher than ever, and flood defense updates are needed.

Everyone then who hears these words of mine and does them will be like a wise man who built his house on the rock. 25 And the rain fell, and the floods came, and the winds blew and beat on that house, but it did not fall, because it had been founded on the rock. 26 And everyone who hears these words of mine and does not do them will be like a foolish man who built his house on the sand. 27 And the rain fell, and the floods came, and the winds blew and beat against that house, and it fell, and great was the fall of it.

I think it's actually pretty recent that "building your house upon the sand" is seen as a necessary part of politics and human nature. It probably comes from short term forecasts of expectation being much easier than long term forecasts of exposure. Pompeii was great for farmers until the volcano erupted.

Fortunately for us, as a species we're now aware of a few volcanos we've built on - climate change is going to make the planet uninhabitable if it continues like this, resource limits on necessary goods for our economy like oil derivatives, massive vulnerability to short term supply + demand shocks (hello Covid), industrial agriculture ruining soil, constant overproduction and waste...

But such knowledge probably won't show up in quant models! They're for making good of fertile ground. Lava is an externality. The ground is fertile, forget about the future.

Reply to Gitonga

What country are you from?

Reply to A Seagull
Take any small to medium business. You know, local restaurants, bars, local service providers and the like. You have the owner(s), the supplier(s), the customers and the employee(s). If this business is the only one of its kind, as the economy is, then its importance is indispiutable. Here is precisely the difference. If your favorite restaurant closes its doors and goes bankrupt, the effect on the macroscale is null. Even in the microscale the effect is tiny if there are enough substitutions (other restaurants). The owners may find somewhere else to work, the same goes for the employees. Customers will just go to other businesses and life goes on. You see, I numbered only 4 groups that are affected by the restaurant operation, and they are quite small. For an economy, to have a no more fossil fuels policy implemented, you will leave thousands of people without jobs, many companies going bankrupt, many suppliers with their hands full of unsellable product and customers with no idea on how to fill their car´s tank. The impact of any policy made by economists is huge and the effects are in no way comparable to the effects of a business

Reply to unenlightened Lmao. My dad is a civil engineer and this is actually crap he has to deal with haha.

Reply to Gitonga You've done it again, Aristophanes. Saving the world, one idea at a time.

Reply to Gitonga Also, there is more to the economy than businesses. Economists are like weather men. Even the best can only do so much. And they still get crapped on by armchair economists.

Reply to Gitonga The assumption that business is all there is to an economy, and that economy is all there is to society, is absurd. Milton Friedman's myth.

The Origin Of 'The World's Dumbest Idea': Milton Friedman

Reply to Banno I think Friedman was very well informed about there being a public sector.

For him the important role of the government was the following:

in a free private enterprise exchange economy, government’s primary role is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free.

Enforcing contracts and preventing coercion is basically what the legal system provides. And Friedman acknowledge the obvious roles, starting from the defence sector:

However, there are some items where it is not feasible for everybody to do his own thing.
There are some cases in which you must have uniformity, some cases in which the answer
must be the same for all the people. The most obvious example is in the case of national
defense. There is no way in which some people in a country can be engaged in an
international war and other people in a country can be not engaged in that war. The decision
whether the country is at war is a yes or no decision that must be the same answer for all.

(Milton Friedman)

And of course he understood other roles of the public sector too.

Education is today largely paid for and almost entirely administered by governmental bodies or non-profit institutions. This situation has developed gradually and is now taken so much for granted that little explicit attention is any longer directed to the reasons for the special treatment of education even in countries that are predominantly free enterprise in organization and philosophy.

But coming to the article you posted, one part is a bit confusing when speaking of Friedmans article:

What’s interesting is that while the article jettisons one legal reality—the corporation—as a mere legal fiction, it rests its entire argument on another legal reality—the law of agency—as the foundation for the conclusions. The article thus picks and chooses which parts of legal reality are mere “legal fictions” to be ignored and which parts are “rock-solid foundations” for public policy. The choice depends on the predetermined conclusion that is sought to be proved.

A corporate exec­utive who devotes any money for any general social interest would, the article argues, “be spending someone else's money… Insofar as his actions in accord with his ‘social responsi­bility’ reduce returns to stockholders, he is spending their money.”

How did the corporation’s money somehow become the shareholder’s money? Simple. That is the article’s starting assumption. By assuming away the existence of the corporation as a mere “legal fiction”, hey presto! the corporation’s money magically becomes the stockholders' money.

This is a bit strange. A corporation is indeed just a complex legal contract and only a vessel for the owners in their business endeavor. Owners do own the company. This assumption isn't only with Friedman, it's basic economic theory of a company, not as the writer terms "legal fiction". Economic theory starts from basics and these are the basics (that companies and corporations are contracts) and only after comes a different question, what is the role of markets, market transactions and companies to the good of the society in general. It is simply erroneous to assume a larger importance to the simple fact that a company is a contract, and then make the argument that well, the thinking doesn't take into consideration stakeholders, the society or the environment. That simplified part of a theory doesn't answer to those issues. It's just a poor argument for promoting stakeholder value.

Reply to ssu
Here's the article: The Social Responsibility of Business is to Increase its Profits

Friedman treats the corporation as a legal fiction, resting on the assets of the stockholders. Hence when they spend corporate money they "spending someone else's money".

If Friedman were to be consistent he would have to argue that the corporation's agency is equally a legal fiction, resting on the agency of the stockholders. It is only by ignoring this that he is able to pretend that the only interest of the corporation is profit.

Stockholders are members of the wider community and have interests beyond mere profit. It is not unreasonable to expect these interests to be reflected in the actions of their incorporated entities.

Reply to ssu Referring again to , The Social Responsibility of Business is to Increase its Profits, the other argument begins with this:

On the grounds of consequences, can the corporate executive in fact discharge his alleged "social responsibilities"? On the one hand, suppose he could get away with spending the stockholders' or customers' or employees' money. How is he to know how to spend it? He is told that he must contribute to fighting inflation. How is he to know what action of his will contribute to that end? He is presumably an expert in running his company--in producing a product or selling it or financing it. But nothing about his selection makes him an expert on inflation. Will his holding down the price of his product reduce inflationary pressure? Or, by leaving more spending power in the hands of his customers, simply divert it elsewhere? Or, by forcing him to produce less because of the lower price, will it simply contribute to shortages? Even if he could answer these questions, how much cost is he justified in imposing on his stockholders, customers and employees for this social purpose? What is his appropriate share and what is the appropriate share of others?

Which amounts to: we don't know what to do, so we should do nothing. Friedman goes on for the remainder of the article to repeat this in various ways. It's indeed a dumb idea.

Reply to Banno If Friedman is talking about the corporations role or social responsibility of countering inflation, that indeed is questionable.

Do you really think that curbing inflation is the role of a private corporation? This kind of nonsense is usually directed at the wage earner and the labor unions: to do "their share" in fighting inflation. Perhaps the flimsy argument can be hurled at companies and corporations too. Inflation, just to remind us, is basically a monetary phenomenon resulting of government spending and the printing of money.

So if you argue that Friedman is wrong here, just what is your reasoning that private companies have to fight inflation caused by the expansion of the money supply? It's as dumb as to say that the baker shouldn't raise his or her prices because the cost of flour has gone up because the currency has lost it's value. But let's blame the baker, not the actual culprit.

And do notice that the article has been written in 1970, hence in an era when we had traditional inflation and the US was still clinging on to the gold standard on an unreasonably high value (which would be soon called out).

Reply to Banno It's indeed a dumb idea. Reply to Banno

It may be the pot [you] calling the kettle black. You seem to be reading something else into his thesis by missing the point ( as usual LOL). Otherwise, the ideology from Friedman basically represents ... "there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

And so, back to the OP, the business man is typically not as concerned with macro economics as he is in maximizing realistic goals of, and for, the company and shareholders-as it should be. As such, it won't make the businessman an experienced expert in global economics or domestic economic policy either. So to say that all business men are experts in macro economic policy is an ignorant judgement, particularly those who repeatedly fail/bankruptcy and profess to be a king's of [national] debt :snicker:

Besides, many businesses are happy to accept a Gov't bail-out check(s) when things get tough. That obviously suggests that Gov't is supposed to know better. Using the sports metaphor, that's why you have offensive and defensive coaches. In principle, each should stay in their respective wheelhouse.

Reply to ssu Reply to 3017amen

Your counter appears to be the non sequitur that businessmen should not try to fix the world.

Sure. Start small.

Reply to Banno

How is it a non sequitur? (Surely you're not just trolling again are you... LOL.)

Reply to 3017amen

The argument is that businessmen may do more than just maximise profit. The counterargument, that they cannot fix inflation, does not follow.

Quoting Banno

The argument is that businessmen may do more than just maximise profit. The counterargument, that they cannot fix inflation, does not follow.

Don't take this the wrong way, but it seems that you may not know what you're talking about. One argument is they should stay in their wheelhouse and worry about their goods and services; company goals & profits, all in a responsible manner as governed by the rules of the game.

If they raise prices as a result of no competition, then shame on free enterprise and capitalism. The freedom afforded by same, encourages entrepeneurs to start businesses that compete against each other, which in turn can reduce inflation. ( Government controls interest rates and money supply to curb inflation, that's their wheelhouse.)

So the OP proposition is that ALL businessmen make good economists, which is (thus far), the so-called non sequitur.

Quoting Banno

Your counter appears to be the non sequitur that businessmen should not try to fix the world.

Sure. Start small.

More like the non sequitur criticism hurled at Friedman/economics: "You mean that economic theory assumes businessmen doing business? What about the greater good for the society and what about the environment??? When you don't have those in the most basic economic model it is disgusting!!! Shame on you."

Reply to ssu You don't appear to be addressing the actual critique. Meh.

Reply to 3017amen So your faith extends to the market.

Quoting Banno

You don't appear to be addressing the actual critique. Meh.

If you didn't notice it, the specific question was about what a private corporation/company can do about inflation.

Quoting Banno

Which amounts to: we don't know what to do, so we should do nothing.

No. Friedman actually makes the point: If LBJ and Nixon spend a lot in fighting the Vietnam War among other things and thus causing the US dollar to lose value, is it then up for the companies or the wage earners to do something about it? By the way, you are making the flimsy argument which is typically hurled against labor unions to "do their share" in fighting inflation and them being the culprits of inflation, which isn't true.

Please tell us what private companies have to do then. As I said before:

Quoting ssu

This kind of nonsense is usually directed at the wage earner and the labor unions: to do "their share" in fighting inflation. Perhaps the flimsy argument can be hurled at companies and corporations too. Inflation, just to remind us, is basically a monetary phenomenon resulting of government spending and the printing of money.

Quoting Banno

So your faith extends to the market.

To say it correctly, my faith, in this context, is in the free market and free enterprise.

As Friedman stated, businesses should act responsibly with open and free competition without deception and fraud. Fast forwarding from Friedman ( in the 21st century), the new emphasis on the environment coming from what we have learned through modern science and recent statistical trends, should not be excluded from the need to act in a responsible manner.

Accordingly, it can, once again, be argued that it is the Gov'ts wheelhouse to provide for the necessary public safety measures, environmental laws, etc. (rules of the game) to act as a watch dog to help prevent greedy individuals from certain violations and/or unintended accidents/consequences from breaching such laws and/or otherwise help with remediation ( from industrial accidents, oil spills, etc.) ... .

Kind of like Homeland Security. After 9/11, I don't think many have argued against having a watch dog, all for the need to increase security measures nation wide.

And so, economics is far reaching, and this is just a small example of all the players involved in economic policy (s), discipline that effects many things and engages many players. It's almost common sense.

And so, back to the OP, I have yet to hear arguments as to why ALL businessmen make great economists? Perhaps just another troll...

Quoting ssu

If you didn't notice it, the specific question was about what a private corporation/company can do about inflation.

Well, no. That was one example. Quoting Banno

If Friedman were to be consistent he would have to argue that the corporation's agency is equally a legal fiction, resting on the agency of the stockholders. It is only by ignoring this that he is able to pretend that the only interest of the corporation is profit.

and

Quoting Banno

Which amounts to: we don't know what to do, so we should do nothing. Friedman goes on for the remainder of the article to repeat this in various ways. It's indeed a dumb idea.

Reply to Banno Seems like you are referring to two different articles or?

But in any case, some questions for you, Banno:

1) What is the incentive for the owners of a corporation to form a corporation?

2) Do you genuinely think that the incentives in forming a corporation are the ONLY incentives for the owners in their life?

3) What do you mean by the "interest of the corporation"? A corporation is only a legal entity, not a physical entity with it's own interests.

4) Do you have problems in understanding what Steve Denning is saying in his article?

Quoting ssu

Seems like you are referring to two different articles or?

Well, yes:

The Origin Of 'The World's Dumbest Idea': Milton Friedman

The Social Responsibility of Business is to Increase its Profits

The first is a critique of the second. Not sure how that was misunderstood.

Quoting ssu

1) What is the incentive for the owners of a corporation to form a corporation?

Why would one think that there was one common incentive for all of them? They are many and various.

Quoting ssu

2) Do you genuinely think that the incentives in forming a corporation are the ONLY incentives for the owners in their life?

No; indeed, that is the point that the counterargument in the article cited above makes. A corporation is free to take on whatever incentives the owners choose; including those that do not lead directly to profit.

Quoting ssu

3) What do you mean by the "interest of the corporation"? A corporation is only a legal entity, not a physical entity with it's own interests.

I simply followed the wording from the articles. I would be more comfortable using "values", since the point of this discussion is to view an economic argument from and ethical perspective. And yes, a corporation is a legal fiction - a technical term used without a derogatory import.

Quoting ssu

4) Do you have problems in understanding what Steve Denning is saying in his article?

Not that I am aware of. Enlighten me.

Quoting Banno

Why would one think that there was one common incentive for all of them? They are many and various.

And those incentives to choose to form a company, a corporation, are things like the limited liability of a corporation, the tax incentives, the ease to coordinate and operate the business. Let's the remember that the other option is simply to buy services without using the contract called a corporation.

Quoting Banno

No; indeed, that is the point that the counterargument in the article cited above makes. A corporation is free to take on whatever incentives the owners choose; including those that do not lead directly to profit.

Yet isn't then the issue really about the people, the owners and managers of the corporation, and how they act in the society and what is their role in the society?

It's they who act, not the corporation, which is just an empty shell, a legal contract, without them. Corporations should clearly follow laws and pay taxes, but that doesn't change them from existing to make a profit. This is very crucial here, because it's the people's actions as a part of a society. Far better to argue about the role in society of the ruling class, the owning class, than pinpoint corporations. Because when we don't refer to the people themselves, but only to a corporations, we are arguing that the corporation should duly exist because of other reasons than making profit. So what do we mean by that?

Are corporations non-profit organizations? There is that option too, you know, to form a non-profit. Or the owners can set up a foundation, a charitable trust. Or simply have an association, again a legal entity that can buy and sell, which has limits to how much profits it can do.

The fact is attacking Friedman here is basically is a lousy argument if not even a straw man, because the function that corporations are to make profits still exists. What is Steve Denning actually saying? Here's a quote from the article:

It’s not merely the application of new technology or a set of fixes or adjustments to hierarchical bureaucracy. It involves basic change in the way people think, talk and act in the workplace. It involves deep changes in attitudes, values, habits and beliefs.

The new management paradigm is capable of achieving both continuous innovation and transformation, along with disciplined execution, while also delighting those for whom the work is done and inspiring those doing the work. Organizations implementing it are moving the production frontier of what is possible.

A lot of mushy good sounding biz-words, but is what Denning is saying really refuting that corporations are to make profit? You see, the simple fact of taking into account stakeholders, taking into account environment etc. doesn't simply refute the basics. It's a different question. But seems like depicting the line that economists like Friedman as he said that corporations exist to make profits have nothing else in their mind is the way this issue handled.

Quoting ssu

...but that doesn't change them from existing to make a profit.

You haven't actually explained why a corporation must make a profit.

Again, why shouldn't a corporation be free to take on whatever values the owners choose; including those that do not lead to profit?

And of course the answer is that they are not limited only to making profits.

Quoting Banno

You haven't actually explained why a corporation must make a profit.

Isn't it obvious? A business enterprise has to make a profit or at least to cover the costs in order to exist in the long term. A business that covers only it's running costs can make no investments, which can create problems later.

And apart from non-profits, which I mentioned, there are many companies where the intention is not to make a profit, but only to have limited liability of the owners. Housing co-operatives are a case example, as they at least here aren't co-operative but stock companies.

The simple fact is that if you want to have limited liability and not prefer to make a profit, there are then options that I already mentioned open for you: non-profit organizations, an association, foundation even a co-operative. Corporation, or basically a company, isn't the only way.

Quoting ssu

A business enterprise has to make a profit or at least to cover the costs in order to exist in the long term. A business that covers only it's running costs can make no investments, which can create problems later.

Quoting ssu

you want to have limited liability and not prefer to make a profit, there are then options that I already mentioned open for you: non-profit organizations, an association, foundation even a co-operative. Corporation, or basically a company, isn't the only way.

This doesn't seem to make sense. In the first part you say that a business which doesn't make profits is in trouble. In the second you say there are other business models available if you want to avoid profit. How come there are other non-profit forms of business if making a profit is essential?

If you're going to say a field is invalid, you're going to need more than an opinion.

Lets look at it this way. Economists are hired by businesses and organizations. Someone is paying them money, and that someone runs that organization or business.

If you believe that business owners are superior in their judgement then economists themselves, then why are they hiring economists? They hire them, because economists add value to their business/organization.

Now if you can show why they've all been bamboozled, feel free. But I just don't see how your point makes any sense if you take it to its end result.

Quoting Isaac

This doesn't seem to make sense. In the first part you say that a business which doesn't make profits is in trouble. In the second you say there are other business models available if you want to avoid profit.

Hint: the other forms are not businesses. They doin't have a business model. Associations don't have business models, they have some agenda or some idea, issue or thing that they promote. It's not called a business. You know, the difference like .com and .org?

Yet they are "legal persons" as corporations and companies and can buy or sell things and own stuff, just like companies.

Quoting ssu

the other forms are not businesses.

What defines a businesses then?

Reply to Isaac Business = commercial activity.

What is commercial activity, then you ask? Well, something done to make or done intended to make a profit.

Quoting ssu

Business = commercial activity.

What is commercial activity, then you ask? Well, something done to make or done intended to make a profit.

Right. So what were you talking about when you said...

Quoting ssu

A business enterprise has to make a profit or at least to cover the costs in order to exist in the long term. A business that covers only it's running costs can make no investments, which can create problems later.

That's now like listing reasons why a bachelor needs to remain unmarried.

Reply to Isaac Well, to have the ability to make investments is very reasonable.

Let's say that most companies intend to make a profit. Those wanting to not make a profit are typically called non-profit organizations. Yes, this is easy.

Reply to ssu

But the issue is whether some category of legal entity needs to make a profit. There can only be two possibilities

1) Making a profit is part of the requirements for being that legal entity.
2) Some contingent list such that failing to make profit causes their demise.

I don't know my law well enough to know about (1), but you seemed to start out listing reasons as if it were (2) and then revert to a definitional justification. Are you saying that corporations will legally cease to be corporations if they stop making a profit?

Reply to IsaacThey will legally cease to exist when they file for bankruptcy. So you might say that is something close to your 2). I assume that surely nowhere is it mandatory for a company to make a profit.

Quoting ssu

They will legally cease to exist when they file for bankruptcy. So you might say that is something close to your 2).

But that leads us back to the fact that not-for-profit companies exist and are not bankrupt. So if a company is not required to make a profit by it's legal definition, and it's not required to make a profit merely to exist (not-for-profit companies exist), then the question remains unanswered. Why must companies name a profit?

Quoting Isaac

But that leads us back to the fact that not-for-profit companies exist and are not bankrupt.

There's no inconsistency. And they are called not-for-profit organizations. As I said before, there's a differnce between .com and .org, just to give one example. Commercial activity usually intends to make profits.

Quoting ssu

Commercial activity usually intends to make profits.

The question wasn't about what they usually intend. It was about what it was necessary for them to aim for.

Quoting ssu

A business enterprise has to make a profit or at least to cover the costs in order to exist in the long term.

So what?

Why ought a group of individuals not incorporate (moving back from your slide to business enterprise...) in order to spend their money collectively on wrapping trees in toilet paper, if that is what they wish to do?

It is inconsistent to say that individuals are autonomous and yet that their incorporated entities, legal fictions that are "an empty shell", must only ever have the one goal, to make profit.

Hence, Quoting Banno

If Friedman were to be consistent he would have to argue that the corporation's agency is equally a legal fiction, resting on the agency of the stockholders. It is only by ignoring this that he is able to pretend that the only interest of the corporation is profit.

Quoting ssu

The simple fact is that if you want to have limited liability and not prefer to make a profit, there are then options that I already mentioned open for you: non-profit organizations, an association, foundation even a co-operative. Corporation, or basically a company, isn't the only way.

You want to move from the"is" of the limited liability of an incorporated body to the "ought" of profit making. But the argument just will not hold.

Plainly, an incorporated body can take on whatever obligations its owners desire.

Plainly, there are not for profit incorporated bodies.

Reply to Banno Most corporations or companies are "for profit". As @ssu noted earlier if they fail to at least cover costs, then they cannot survive, and if they merely cover costs, they cannot grow.

There are "not for profit" incorporated organizations, and they also must "make ends meet" or fail. Generally such organizations profit from donations or government subsidies, but ideally any funds in excess to running costs are plowed back into the organization to help make it more effective in the carrying out of its given work.

A corporation that is not "not for profit" would generally aim to make a profit, if only to give something back to investors, who otherwise would be better off putting their money in the bank or in government bonds; so it would seem that the aim to make a profit is necessarily one, if not the main aim of any such corporation.

Quoting Janus

A corporation that is not "not for profit" would generally aim to make a profit, if only to give something back to investors, who otherwise would be better off putting their money in the bank or in government bonds; so it would seem that the aim to make a profit is necessarily one, if not the main aim of any such corporation.

Non-profit making companies are not allowed to make a profit to give something back to their investors. That's the whole point. Otherwise they'd be a profit making company.

Reply to Janus Yes, yes, indeed, all that.

The Friedman article argues that the sole aim of a corporation is to make a profit; that they ought have no other goal.

That is the bone of contention here.

Quoting Isaac

Non-profit making companies are not allowed to make a profit to give something back to their investors. That's the whole point. Otherwise they'd be a profit making company.

That's right, but I was referring to not not-for-profit companies.

Reply to Banno :ok:

Quoting Janus

That's right, but I was referring to not not-for-profit companies.

Sorry, didn't notice the double negative. Seems like an odd point to make in the light of the discussion (like you'd have to explain to anyone here what profit-making companies make a profit for)

Reply to Isaac It seemed there were assumptions being made that any "for profit" corporation's only concern would naturally be profit-making, and that "not for profit" organizations normally had no such concern at all. Correction seemed in order. Perhaps it was, or perhaps I didn't read carefully enough.

Quoting Banno

The Friedman article argues that the sole aim of a corporation is to make a profit; that they ought have no other goal.

That is the bone of contention here.

More likely Friedman is arguing that companies should not be obliged by the government to have other goals, like being actors that have to deal with inflation (especially when inflation doesn't happen because of them, but is a monetary phenomenon). Yet if their actions have externalities (like they produce pollution), naturally they have to oblige with the laws.

Quoting ssu

More likely Friedman is arguing that companies should not be obliged by the government to have other goals

No he's not. He's arguing that a CEOs job is soley to make as much money for the company's shareholders, customers and workers as they can within the law. His argument is that the company is a legal fiction and so doesn't own the assets it appears on paper to own. He goes on to argue (variously) that these assets belong to the investors (shareholders, workers, customers... anyone which gives the company money). Additionally, he then decides on their behalf that all they're interested in is money (and law).

All of which conservative flag-waiving is aimed only at excusing sociopathic CEOs when they drive workers, the environment and social structures into the ground to increase their bonuses.

Quoting Isaac

His argument is that the company is a legal fiction and so doesn't own the assets it appears on paper to own.

Well, pieces of paper cannot own anything.

Quoting Isaac

All of which conservative flag-waiving is aimed only at excusing sociopathic CEOs when they drive workers, the environment and social structures into the ground to increase their bonuses.

...Which itself is the typical narrative based on stereotypes hauled against economists, especially the Chicago school.

Quoting ssu

Well, pieces of paper cannot own anything.

Why not?

Quoting ssu

Which itself is the typical narrative based on stereotypes hauled against economists, especially the Chicago school.

Indeed. But one of us is actually right.

Quoting Isaac

Why not?

Ok. Now I'll stop responding to this topic.

There's far more philosophical debate in arguing if pet animals or wildlife can own something than non-living objects.

Homeowner. Property owner?


Quoting Isaac

Indeed.

Thanks for being sincere.

Quoting ssu

More likely

...

So instead of addressing the actual article you choose to pretend it is other than it is?

Quoting Banno

So instead of addressing the actual article you choose to pretend it is other than it is?

As Milton Friedman wrote in his paper about the issue:

When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who
discovered at the age of 70 that he had been speaking prose all his life.

And if you would have read the article further, Milton Friedman continues:

A group of persons might establish a corporation for an eleemosynary purpose--for example, a hospital or a school. The manager of such a corporation will not have money profit as his objectives but the rendering of certain services.

So I do stick to my view on this. (And the above makes the counter point to the argument that you and Reply to Isaac uphold that Friedman see's profit making the only reason for corporations).

Quoting ssu

There's far more philosophical debate in arguing if pet animals or wildlife can own something than non-living objects.

I'd forgotten about the conservative reification of ownership.
No, ownership is itself just a legal status with purely legal implications (none of this 'natural rights' bullshit). It can be legally assigned to a sofa just as well as to a person. All it means is that certain other laws pertaining to the legal state of ownership also attach to that thing where relevant.

If a company owns assets and a CEO has a legal right to assign them, then there's nothing surprising or philosophically problematic about it. It just means (contrary to Friedman's assertions), that the CEO can spend them in pursuit of whatever objective they see fit.

Quoting ssu

the above makes the counter point to the argument that you and ?Isaac
uphold that Friedman see's profit making the only reason for corporations

The issue is, as I said above, Friedman offloading responsibility to shareholders, workers, customers and then assuming all they want is money. The fact that, in some tightly circumscribed situations he deigned to admit they might want something else doesn't counter that point at all. It's the offloading of responsibilty that's the problem, the idea that CEOs can hold their hands up and say "not my problem".

Exactly the same issue would arise in the hospital example. If the CEO completely ignored, say, the environmental damage of his decisions by saying "I'm just pursuing the rendering if certain services, considering anything else would be a dereliction of my duty". It's still a ridiculous excuse.

Quoting Gitonga

Instead of the economy being run by economists we should ask entrepreneurs how to run the economy especially those from poor backgrounds because they'd know what needs the most priority in terms of how to succeed financially. Whether it's education, loans or transport etc

We should run economies like a cell runs its biochemistry? Why? Because it's a stable open system where the currency (ATP/money) would be provisioned equally and necessarily to all components.

The same ten goes for the teachers. Whatever subject they teach, why don't they work in given field, so they can teach what's important, modern, new, has promising outlook?

Quoting ssu

So I do stick to my view on this.

Your view and facts have a quite flexible relationship.

Again, here's the article: The Social Responsibility of Business is to Increase its Profits for anyone who wanders past to check your view.

I'll leave here the last line from that article, where Freidman quotes himself:

...there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud....

And conclude that, while I disagree with the title of this thread, what is not true of economists is true of ssu.

Reply to Banno Referring to ad hominem attacks now, Banno? I did refer to that article and gave quotes from it.

Well, you didn't ask my opinion, but about Friedman's article and Steve Dennings criticism of that article (see Reply to Banno). This is the most typical criticism hurled at Friedman: that economists like Friedman cannot fathom anything else but profits and greed as the sole mover of people.

I personally don't like so much the monetarist from the Chicago school, but view the (Denning) criticism very simplistic. But then again, a lot of the theories Friedman puts out are simple and should not taken literally to explain everything in economics. Of course there are the people who take literally a simple mathematical model given in economics as somehow as equivalent to theories in physics, which is totally absurd.

Quoting Isaac

No, ownership is itself just a legal status with purely legal implications (none of this 'natural rights' bullshit). It can be legally assigned to a sofa just as well as to a person - If a company owns assets and a CEO has a legal right to assign them, then there's nothing surprising or philosophically problematic about it.

Actually there is a lot of problems with this outrageous idea, and it's quite peculiar that you don't notice it yourself.

So let's have this Isaac's company, which is owned by a sofa. If the company breaks the laws, doesn't pay it workers (including the CEO), does take orders and money from customers, but doesn't delivery anything and still manages to destroy the environment, you think a judge will believe that the sofa did it all, the sofa stole the money? Let's put the sofa in jail, so it cannot break the laws anymore. What any judge would likely determine is that the company is just a shell company for some physical person to avoid contract responsibilities like paying salaries, embezzling customers and to avoid the consequences of breaking the law.

A sofa owning something is simply absurd, so you likely you haven't thought this to it's end.

Reply to ssu

You're confusing ownership with responsibilty.

Reply to Isaac You are.

What on Earth don't you understand in that ownership and responsibility do go hand in hand?

Reply to ssu

How?

Let's say a law exists that says the legal owner of my car is my cat. Another law exists which says that the legal responsibility for anything the cat does with that car lies with me, and that I have a legal right to control that car in whatever way I think promotes the cat's best interests.

What prevents this? Because if you think something does, you'll need to take down the whole law around legal trusts.

Quoting Isaac

Let's say a law exists that says the legal owner of my car is my cat. Another law exists which says that the legal responsibility for anything the cat does with that car lies with me,

In what country is you think that possible? Animals are not legal persons and cannot directly own property, at least for now. (You could argue that surely wild animals are at least stakeholders, that should have "rights", but that's a bit different.)

An association may own a car, but the responsibility lies on the administration and if the members of the association decide to terminate the association, they decide what do with the car. You see, in every form of contract, be it an association or a trust, there are in the end human beings behind it.

If you don't have any humans behind a legal person, most likely that is a vehicle to avoid personal responsibility, like tax evasion.

Quoting ssu

In what country is you think that possible?

Any country.

Quoting ssu

An association may own a car, but the responsibility lies on the administration and if the members of the association decide to terminate the association, they decide what do with the car.

Firstly, they don't just get to freely decide what to do with the car. They can't, for example, just keep it for personal use, that's embezzlement. Secondly, what you've described (with the above caveat), is a trust. Exactly as I described it. The association owns the car. People have the responsibility for it.

Quoting Isaac

Any country.

Cat's don't own anything in any country!

Quoting Isaac

Firstly, they don't just get to freely decide what to do with the car. They can't, for example, just keep it for personal use, that's embezzlement.

Finally you get my point. But yes, associations can own cars and then the members of the association can use them as by the associations rules.

Quoting Isaac

The association owns the car. People have the responsibility for it.

Correct. And then also direct ownership comes with responsibility too.

Quoting ssu

Cat's don't own anything in any country!

You didn't ask me where it happened, you asked me where it was possible.

Quoting ssu

Finally you get my point.

Quoting ssu

The association owns the car. People have the responsibility for it. — Isaac

Correct

That's my point, not yours. That a legal fiction (an association) can own something. You were disputing that.

Quoting Isaac

You didn't ask me where it happened, you asked me where it was possible.

Where is it possible?

Do notice that animal rights have started from a totally different category. For example in the US in the 19th Century the starting point was that the freedom from pain and suffering was allowed for all animals. If we are worried about the state of the environment, species becoming extinct, preserving the state of the flora and fauna, we don't think about these issues by thinking of property rights of animals (or plants). Not even Milton Friedman did.

Quoting Isaac

That's my point, not yours. That a legal fiction (an association) can own something. You were disputing that.

This is becoming quite ridiculous as you aren't even listening to what I say.

Apart from earlier reminding that non-profit entities like associations exist and not all are profit seeking, what I've tried to say that all these legal persons are basically contracts made by actual physical people, for some reason or another. Associations, trusts, companies, corporations are all basically vessels for living people to organize various kinds of activities.

Yet if we assume that there isn't any physical person behind a legal person like a corporation, trust or association, then we have a problem. If you assume a sofa can be the owner of a corporation, then there is no link of the responsibility to any human being. An association has it's members, a trust has it's board, even a nation has behind it people. You do understand the difference between an association and a stock company. Because if you argue that in a stock company those owning the stock don't matter, well, then you have to create totally new legal binds (to physical humans) that matter and then it would be logical to designate this new framework with a different name.

Quoting ssu

all these legal persons are basically contracts made by actual physical people, for some reason or another. Associations, trusts, companies, corporations are all basically vessels for people to organize various kinds of activities.

OK.

Quoting ssu

Yet if we assume that there isn't any physical person behind a legal person like a corporation, trust or association, then we have a problem.

And who's assuming that?

Quoting ssu

If you assume a sofa can be the owner of a corporation, then there is no link of the responsibility to any human being.

Why not? Ownership of, and responsibilty for, a thing are two different legal states. In a trust, the benefactor owns it, the trustees are responsible for it.

Quoting ssu

You do understand the difference between an association and a stock company.

I hope so, but rather than patronise me by playing the exasperated teacher perhaps you could just explain what error you think I've made and what difference it makes to the issue at hand.

I think Isaac we can advance from this onward.

So I guess here's your point and correct me if I'm wrong:

Quoting Isaac

Why not? Ownership of, and responsibilty for, a thing are two different legal states. In a trust, the benefactor owns it, the trustees are responsible for it.

So is your question about if ownership and responsibility would divided too in a stock company?

If so, what do you see as the benefit of this?

Quoting ssu

So is your question about if ownership and responsibility would divided too in a stock company?

It's not a question, I'm rebutting your suggestion that it's ludicrous for a non-human to own anything (particularly in relation to the fact that companies own things). I'm no economist, so I'll quote Wikipedia.

In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things an everyday person can usually do in law – such as enter into contracts, sue and be sued, own property, and so on

It's pretty clear that any legal entity can own property, it could be a company, a cat or a sofa (though not according to current law). The point is, there's no 'natural law' on the matter.

The reason this was brought up (if I recall) was to counter Friedman's idea the the shareholders 'owned' the company and so the CEO would be just 'doing their job' maximising profits.

Ownership and responsibility are already divided in a stock company. The company as a legal entity owns its assets, either the shareholders or no-one owns the company (depending on which legal scholars you agree with, the matter is in dispute), and the various tiers of management are responsible for various aspects of the company.

The point is that absolutely nowhere in either the legal constitution, the articles of association, or the management structure is is decreed that the CEOs sole responsibility must be to the shareholders. It is therefore not true, even if we take Friedman's assumption that they mostly want more money, that providing them with that money is, or should be, the sole aim of the company.

Quoting Isaac

It's not a question, I'm rebutting your suggestion that it's ludicrous for a non-human to own anything

Totally wrong.

What I have said that there cannot be a legal person without any people attached to it, starting from, oh I guess, that in the first place it's a contract is made by people.

A company can own a sofa. Yet a sofa cannot own a company. Trusts, associations, pension funds, all have some person behind them that is responsible. A stock company has those that own it's stock who have limited liability. What is so difficult in understanding this?