I am very fond of asking my students to define the words they use. For example, I have yet to find a student that has a good definition of marketing, despite the popularity of marketing courses in business schools. Suppose I asked you to define capitalism, the intellectual and practical foundation for business. What would you say? Drum roll....
Capitalism is "the free allocation of capital by individuals in the service of their individual ends (within the framework of a fully competitive market)". (paraphrase of Milton Friedman)
This definition comes from a new working paper at HBS by Rebecca Henderson and Karthik Ramanna titled "Managers and Market Capitalism". The paper argues that businesses have a moral responsibility beyond Milton Friedman's dictum to maximize shareholder returns. The authors argue that businesses have a moral obligation to serve society by preserving free markets and capitalism, which is in their self-interest, and not just satisfy the self-interest of shareholders. Essentially without capitalsim and free markets the shareholders would most likely be harmed. Therefore, egregious behavior, such as the 2008 financial crisis, undermines the integrity of free markets and is therefore immoral.
The authors provide a moral framework around the writings of Milton Friedman through a very insightful discussion of the history of the economic principles that underpin his thinking. Friedman's thinking was in large part based on the original liberal thinking of Hobbes and Locke and further advanced by Friedrich Hayek. The economic history lesson alone makes the article worthwhile for anyone who needs a refresher in the fundamentals of capitalism.
I also think the article is the best development of a moral framework for capitalism that I have read. The power of the argument is that the authors derive the requirement for moral behavior from classic economics writings alone with no reliance on another discipline. Putting Friedman in a compelling moral framework is long overdue.
The article is here Download SSRN-id2231526. Simply a brilliant article.
Another perspective on capitalism from another group of HBS professors is here. "Capitalism at Risk", despite the title, presents views consistent with Henderson and Ramanna albeit derived from a totally different approach . Not as rigorous an approach but equally insightful.