In private business “[t]here is no need to limit the discretion of subordinates by any rules or regulations other than that underlying all business activities, namely, to render their operations profitable.”—Ludwig von Mises, Bureaucracy, p. 46
In this quote from his classic 1944 book Bureaucracy, Mises explains why private, for-profit businesses need not, and should not, be bureaucratic and entangled in rules and regulations mandated from the top of an administrative hierarchy. Instead, they should, make the best use of decentralized “knowledge of time and place” to do their jobs. Mises’ admonition that the focus of capitalist enterprises is and should be to “make a profit” later became, in the hands of Chicago School economists, “maximize shareholder value.” This view is most widely associated with Milton Friedman and was accepted by American corporate management, for the most part, for many years.
Then in 2018 Blackrock CEO Larry Fink, who managed $6 trillion in corporate assets at the time, publicly insisted that corporate executives should focus on “stakeholders” (i.e., virtually everyone connected in any way with a corporation) instead of shareholders. This was followed in August of 2019 by 200 CEOs of major corporations issuing a declaration that maximizing shareholder value was no longer their paramount goal; adding value to all “stakeholders” was.
At the time, George Reisman wrote on the Mises Wire that this showed that “many CEOs know so little about economics that they don’t know that in a free market producing for the profit of their stockholders in and of itself implies producing for the benefit of everyone.” A successful, profitable business in a free competitive market will have customers who have benefited more than they have spent; workers will be paid more than they can make elsewhere; there will be prosperous towns and cities; and it benefits all “stakeholders” generally.
What is so significant about the CEO declaration, wrote Reisman, is that “it shows to what extent America’s intellectual heritage of the right to pursue happiness (which includes the pursuit of profits) has rotted away and been replaced by a mentality ripe for socialism” (emphasis added). He then says that we must keep in mind that “as the arbitrary power of the state has grown, businessmen have been put in a position more and more resembling that of hostages held by terrorists.”
Hellbound and Down 