Samuelson on the limits of Libertarianism

Love That Corporation - The New York Times
December 26, 1970

"Last Christmas I wrote a column on economics and love. Under the mistaken preconception that these, like oil and water, cannot mix, several people applauded either my innovation or my recantation.

Illustrative of this widespread misconception is the following typical query:

“Professor Samuelson, is it really a finding of economics that corporations should solely maximize, their profits, disregarding any special obligation to the public interest or to the humanitarian needs of their workers and consumers?”

I was glad to be able to reply, “Yes, Virginia, a large corporation these days not only may engage in social responsibility, it had damn well better try to do so.”...

It is true that Henry Ford II cannot operate today like Henry Ford, his grandfather. But neither can he operate like St. Francis of Assisi. The several hundred large corporations react to, and set, an evolving code of social conduct. So long as anyone does not depart too markedly from the ruling norm, it will not be penalized out of existence by market competition.

Thus, if International Harvester attempted by itself to solve the problem of general inflation, or even inflation, in farm equipment prices—or if its board set out, by wage and price policy, to rectify the inequitable distribution of incomes in the United States —after a very few years International Harvester would be eliminated from the roster of Galbraithian giants. The elimination process would be a bit slower, but none the less inexorable, if Allis-Chalmers, Deere, Caterpillar, Dodge Trucks, and General Motors joined it in this unilateral crusade for social justice.

To advance the good cause, one must not expect too much of altruism. It is nonsense to look to General Motors, or even the Big Three, for voluntary solution of the problem of air pollution. It's only good sense to impose by the force of law—by regulation and taxation—an obligation for the auto makers to produce exhaust systems that lessen pollution of the environment.

Corporations, I am afraid, are persons, born like the rest of us imperfect and subject to sin. Thus the small man is no better than the General Electric board. When I drove into a Los Angeles service station recently, I noted that the lead‐free gas pump was neglected. I soon found out why. Good people, men who love their wives and never fail to contribute to the collection plate; are not willing to pay more for gasoline which, if they alone use it will only imperceptibly purify the atmosphere for the rest of the community...

I quote a final example from the recent book by William F. Buckley Jr. Lapsing for once into good sense, Buckley is arguing that coercive limitations can in ‘such good causes as quarantine against plague add to total welfare and the algebraic total of human freedom:

“I asked Professor [Milton] Friedman, ‘Is it your position that, assuming the community decided to license the whores, it would be wrong to insist that they check in at regular intervals for health certificates? Yes, he thought that would be wrong. After all, if the customer contracts a venereal disease, the prostitute having warranted that she was clean, he has available a tort action against her.”

In response to a number of letters using this reductio ad absurdum as a reason for indicting economics, my reply is simply to demur. There is nothing in economics that leads to such a conclusion. Economics cannot tell us what to believe; it can help us to sort out the costs and benefits of various arrangements, as those costs and benefits are defined by the ethical value systems that we bring to economics.

Using civil suits to penalize undesired behavior after it takes place is indeed often a better social device than expensive and unpleasant inspection prior to behavior. But I cannot imagine a worse case to illustrate this purely tactical precept.

Thus, in principle, a veneral disease could be of irreversible type. Second, the courts would undoubtedly come to apply the doctrine of caveat emptor, let the buyer beware, to transactions such as these—what does it mean for a prostitute to warrant that she is “clean”? Finally, what are the assets against which the victorious plaintiff can levy? The mind boggles.

Hard cases are said to make bad law. Paradoxes cannot be counted on to define good economics—not on Christmas or any other day of the year."