Milton Friedman on the price of human life

The following exchange between the Nobel economist Milton Friedman and a college student (who was not named Michael Moore) has been making the rounds of the Internet.

The video shows a segment from a 1977-1978 lecture series given by Milton Friedman, in which he is questioned by a student about free market principles and the Ford Pinto.  The Ford Pinto, which was sold from 1971 to 1980, was a subcompact which, because of its design, had a gasoline tank that would explode during rear-end collisions.  Ford in an internal memo estimated that the problem could be fixed through a $13 fix, but as this would amount to spending more than $200,000 per estimated life saved, this would be too much.  About 1,000 Ford Pinto drivers were victims of rear-end explosions.

The student said this was morally wrong.  Friedman said it is not a question of morality, but of economic calculation.  No human life is of infinite value, he said; you wouldn’t spend $1 billion to save a human life, because it would soak up resources needed to preserve other human lives.  So the only question, according to Friedman, is whether Ford weighed costs and benefits correctly.  He did not express an opinion on whether it did.

Here are some problems with Friedman’s argument:

  • The contemptuous dismissal of ordinary human moral intuition.
  • The substitution of a “rational” judgment based purely on monetary factors.
  • A “rational” judgment based on an extreme example that never would occur in real life.
  • Privileging a corporate executive to make the cost-benefit evaluation over the person affected.

All these assumptions are worth bringing to light and challenging, because they are widespread in American society today—thanks in part to Friedman’s influence.

If all Milton Friedman had said is that economic factors have to be taken into account, or that economic factors set a limit on what is feasible to do, I would agree.  These are truths that are all-too-easy to forget. But this is not what he said.  He said economic factors are the only consideration.  He appeared to think it reprehensible to think otherwise (watch the video and decide whether I am exaggerating).

The college student was ridiculed for taking it for granted that corporations should take common-sense action to avoid killing their customers.  This was not a hypothetical danger.  People did die as a result of rear-end collisions with Ford Pintos.

Contempt for the moral feelings of ordinary people is not unique to Friedman among economists.  The whole Freakonomics genre of economics books is devoted to showing that actions people take for ethical reasons always backfire, and actions people take for selfish reasons always work for the greater good.   Professional “ethicists” are the same as this type of economist.  Their function, typically, is to give people rationales for overcoming qualms of conscience and doing what is expedient.

Milton Friedman

It is true that moral intuition can lead you astray, and it is necessary to subject moral judgments to a reality check.  But that isn’t what Friedman said.  He said judgments should be based on a numerical calculation, which moreover was based on a hypothetical example that would never occur in real life.  This is the fallacy of thinking any statement expressed in moral language is irrational, and any statement expressed in terms of numbers is rational.

Friedman said that perhaps Ford should voluntarily have warned the customer that buying this car would increase the risk of death by a certain number of percentage points, which probably would have been a small number.  He did not say that Ford should have told the customer that there was a danger of the gasoline tank exploding in a rear-end collision.  Instead of a factual warning, he recommended a warning based on informed guesswork, and in a form that the average person would not have found meaningful.

The Ford customer was not “free to choose” to assume an added risk of flaming death in return for an economic benefit.  The customer didn’t know the risk.  Instead the risk was imposed by an anonymous manager of Ford Motor Co., shielded from personal liability by being embedded in a corporate structure.

Friedman said you wouldn’t impose a safety requirement on Ford if it meant spending $200 million per human life.  In this example, it would imply that the cost of making a Ford Pinto safe would be $13,000 per car instead of $13 per car.  In that case Ford’s choice would have been to sell the Ford Pinto at an unaffordable price, to subject 1,000 of its customers to exploding gasoline tanks without their knowledge, or not to manufacture the car at all.  In such a case, it would have been better not to make the Ford Pinto at all.

Take the opposite unrealistic hypothetical case.  Suppose the cost of protection against a gas tank collision was 13 cents per car, or $2,000 per human life saved, and Ford refused to make it.  Would Milton Friedman have said this economic calculation was within the rule of reason?

Finally Friedman said Ford Motor Co. should not have been subject to a requirement of full disclosure.  If Ford behaved wrongly, its customers have the right to sue for damages, he said.  In a way, Friedman is right about this.  If companies are not subject to reasonable regulation, then the only way to assure product safety is to subject them to lawsuits in which they are liable for huge damages.  This isn’t efficient, because so much of the damage awards would go to the contingency fees of lawyers.  But Friedman is right.  This is the only alternative to reasonable regulation.

I do agree that there are other things in life that matter as much as safety, and that there is a limit to how much can be spent on safety.  As the time Friedman had the argument with the student, my car was a Ford Pinto.   I liked my Pinto more than any car I have owned before or since.  After it wore out, I would gladly have bought another just like it.  Even after I learned about the exploding gas tank problem, I neither got rid of the car nor had it retro-fitted.  So score one for Friedman.  Life is indeed a matter of trade-offs.

On the other hand, I’m not sure I would have bought a Ford Pinto in the first place if I’d known about the exploding gas tank problem.  And I would gladly have paid $13 more for protection against being burned alive.

∞∞∞

Update 9/20/2016,

I came across an old article that gave the numerical basis of Ford’s cost-benefit calculation.  Notice that the actual calculation was based on an $11 cost per car, not $13.

Exhibit One: Ford’s Cost / Benefit Analysis.

Benefits and Costs Relating to Fuel Leakage Associated with the Static Rollover Test Portion of FMVSS 208

Benefits

Savings: 180 burn deaths, 180 serious burn injuries, 2100 burned vehicles

Unit Cost: $200,000 per death, $67,000 per injury, $700 per vehicle

Total Benefit: 180 x ($200,000) + 180 x ($67,000) + 2100 x ($700) = $49.5 Million

Costs

Sales: 11 million cars, 1.5 million light trucks Unit Cost: $11 per car, $11 per truck Total Cost: 11,000,000 x ($11) + 1,500,000 x ($ I 1) = $137 Million

∞∞∞

Exhibit Two: Ford’s Cost/Benefit Analysis at $5.08 Per Fuel Tank Replacement

Benefits Savings: 180 burn deaths, 180 serious burn injuries, 2100 burned vehicles

Unit Cost: $200,000 per death, $67,000 per injury, $700 per vehicle

Total Benefit: 180 x ($2,00,000) + 180 x ($67,000) + 2100 x ($700)= $49.5 Million Costs

Sales: 11 million cars, 1.5 million light trucks

Unit Cost: $5.08 per car, $5.08 per truck

Total Cost: 11,000,000 x ($5.08) + 1,500,000 x ($5.08) = $63.5 Million

∞∞∞

Exhibit Three: The Break Even Point of the Cost/Benefit Analysis

Benefits Savings: 180 burn deaths, 180 serious burn injuries, 2100 burned vehicles

Unit Cost: $200,000 per death, $67,000 per injury, $700 per vehicle

Total Benefit: 180 x ($200,000) + 180 x ($67,000) + 2100 x ($700) = $49.5 Million Costs

Sales: 11 million cars, 1.5 million light trucks

Unit Cost: $5.08 per car, $5.08 per truck

Total Cost: 11,000,000 x ($3.96) + 1,500,000 x ($3.96) = $49.5 Million

Therefore, if the cost to replace the fuel tank was $3.96 per vehicle, the costs and benefits would equal each other out (all other things remaining the same).

∞∞∞

Exhibit Four: What is a Life Worth?

Societal Cost Components for Fatalities 1972 NHTSA Study

Component 1971 Costs

Future Productivity Losses: Direct $132,000, Indirect $41,300

Medical Costs, Hospital $700, Other $425

Property Damage, $1,500

Insurance Administration, $4,700

Legal and Court, $3,000

Employer Losses, $1,000

Victim’s Pain and Suffering, $10,000

Funeral, $900

Assets (Lost Consumption), $5,000

Miscellaneous, $200

Total Per Fatality, $200,725

Source: THE FORD PINTO CASE

What I take away from this is that, in the early 1970s, the NHTSA (National Highway Transportation Safety Administration) measured the value of a human life solely in terms of a person’s net contribution to societal wealth.

The implicit philosophy is that the value of human beings consists in their ability to produce societal wealth, rather than the purpose of wealth being to maximize human well-being.

If you accept that kind of thinking, then indeed the utility of saving $11 on each of 18,182 Ford Pinto cars or trucks exceeds the saving of one human life.

∞∞∞

20100630

Source of cartoon: Saturday Morning Breakfast Cereal [Added 6/2/13]

∞∞∞

Click on Pinto Madness for a Mother Jones article on the Ford Pinto.

Click on The Ford Pinto Case: The Valuation of Life As It Applies to the Negligence Efficiency Argument for a law school article on the case [Added 9/20/2016]

Click on Ford Pinto wiki for a Wikipedia article on the Ford Pinto.

Click on Ideas Matter for a web log devoted to Milton Friedman’s ideas.

Click on Milton Friedman’s Century for a web site devoted to Milton Friedman’s ideas.

Click on Milton Friedman wiki for a Wikipedia article on the Nobel economist

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21 Responses to “Milton Friedman on the price of human life”

  1. philebersole Says:

    Somebody who uses the handle ThinkAsTheyDoOrElse sent the following comment via e-mail

    That video was made in the time frame of the Pinto case. There was likely much misinformation about it. Friedman’s attitude might be explained by a desire to be objective in an atmosphere poisoned by misinformation.

    This may clear some things up: http://www.pointoflaw.com/articles/The_Myth_of_the_Ford_Pinto_Case.pdf

    Like

    • philebersole Says:

      The Myth of the Ford Pinto is a law review article which makes essentially the same pseudo-rational argument as Milton Friedman. The author treats as irrational “the public’s frequent hostility to safety rules that are seen as being undertaken solely for the sake of corporate profit.” He sets up a straw man called “the pricelessness of human life.”

      Let’s apply cost-benefit analysis to the Ford Pinto case in real terms rather than hypothetical numerical terms. By selling the Ford Pintos without the $13 safety fix, somebody in the company knowingly condemned people to a horrible death. If the Ford Pintos had been sold with the $13, who would have suffered? Would anyone have refrained from buying a Ford Pinto because it cost $13 more?
      No identifiable individual or group of individuals would have suffered if Ford had made the fix; a number of individuals suffered because it did not.

      The issue was never whether cost-benefit analysis is legitimate. The question was whether there was some tangible benefit to some actual person or group of people that justified knowingly doing something that would cause people to be killed.

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  2. Stagyar zil Doggo Says:

    I couldn’t see/hear the clip on my phone, but both you and Friedman appear to have (largely) missed the most significant factor here – that the money would have been spent by a party different from the owners of the lives saved. So the “rational” choice for Ford was to spend nothing, as they were not the ones benefiting from the expense. Their only “rational” reason for spending any money would relate to secondary issues like brand building, avoiding legal risk, etc. Ford is not a public agency like medicare comparing the cost of a medical treatment to the number of years it adds to life on average.

    The primary reason for Ford to spend any money at all would be moral, and its unclear to me how to assign a monetary limit to this moral obligation.

    Liked by 1 person

  3. Agaponzie Says:

    I saw this video before and I agree that Friedman has many logical errors, but he is a good talker and is able to speak around the college student without adressing the problem. I believe that life does have infinite value, at least to the individual. There are many problems with the way we choose to live our lives if this is the case though. I discuss more on the infiinite value of life here: http://agaponzie.blogspot.com/2012/01/infinite-value-and-freedom.html

    Liked by 1 person

    • philebersole Says:

      Prolonging human life is an important value, but it is not the only value. There are morally reprehensible things I would not (or at least should not) do to prolong my life. There are conditions under which continuing to live is not worthwhile; I have specified some of these conditions in my Living Will. In any case, my life has a finite length, and there is nothing I can do about that.

      My quarrel with Milton Friedman is that he disparages human moral intuition, and reduces all questions of value to questions of economic calculation.

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      • Agaponzie Says:

        I do not disagree with you. I think that by reducing the value of human life to economic calculation, you miss the real value of life. There is not a value limit you can put on life. I notice that Friedman never comes out and says it was ok what Ford did, but tried to divert the question.

        As far as prolonging life, while I agree there are times to do it and times when it would be reprehensible, I also think that death is just as valuable as life. 10 years of life are not more valuable than 1 year of life, though we all often want more time. That said, life being infinite in value, cannot be economically calculated.

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  4. James Says:

    In what respect can the value of human life not be calculated (other than ethical reservations)? Scientifically speaking, human life has a value because the maintenance of life (survival) requires certain things which have value. It is naive to think that the maintenance of life is ever ‘free’ or ‘immeasurable’. When someone is getting something ‘free’ in life, it is only because someone else is paying the cost for it. Babies or people receiving welfare may not to pay for certain aspects of maintaining life because other people are bearing the costs in this case guardians/government via taxpayers.Nothing in life is inherently free of cost and cost does not neccesarily imply financial cost but other costs as well. Since maintaining life requires cost, cost-benefit judgements to maintain life can be taken to reveal the value of life.Take food, the most basic necessity for survival. We cannot even obtain food we need to survive without working for it, whether through self farming/hunting or buying food from a supermarket

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    • philebersole Says:

      Monetary considerations are a limiting factor, not a moral value. The economic calculation is what belongs in parentheses, not ethics or fellow-feeling.

      I do not see how it is possible to affirm human freedom, as Milton Friedman did, and devalue human life. I don’t know if you consider yourself a libertarian, but a libertarianism that treats other people primarily as “useless human mouths” is not far from fascism.

      Like

      • dangelo136 Says:

        I like to use the metaphoric example of what I like to call “The Alleyway Incident”, please bear with me:
        You are walking down the street and take a wrong turn into a dark alleyway. Before you turn around, a mugger jumps out from the dark shadows, grabs you from behind and puts a gun to your head and says: “your money or your life”.
        Of course the mugger, being desperate, and NOT an economist, has already made a cost/benefit analysis of his actions ( possibility of getting caught; murder over armed robbery; amount of time to be served for the crime, etc.) and has concluded that he CAN get away with your murder. So he has rationally came to his course of action. YOU, on the other hand, have only a winning lottery ticket in your pocket, which may be worth, just $25 dollars or a million dollars. Now if you tell the mugger that you have nothing, he’ll kill you and the value of the ticket goes to zero for you. On the other hand, if you give away that ticket, you will have traded your life for the value of that ticket and thus will have put a value on your life; either $25 or $1,000,000. And the clock is ticking.
        Now Friedman, says that life HAS no value except in terms of monetary value, which is pretty much the mugger’s point of view in this instance; your view, being rational, is that YOUR life has value and you are willing to eschew MONEY in exchange for continuing it. The money will be worth zero to you either way you decide ( give him the ticket or give up your life) This simple allegory I hope, exposes the weakness in Friedman’s argument in a very realistic and humorous way.
        I drew inspiration for this mental exercise in morality over money from Jack Benny (https://www.youtube.com/watch?v=-tVzdUczMT0)

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  5. The value of life – how a company tried to compute it and how it failed « Nova workboard Says:

    […] https://philebersole.wordpress.com/2011/08/11/milton-friedman-on-the-price-of-human-life/ […]

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  6. SimonStiph Says:

    The author of this article brings up points worth discussing, but that are already sufficiently addressed by Milton’s answer, however simplistic that answer was.

    In the case of the “13-cent” fix to the gas tank, Ford should have every right to decide whether to implement the solution or not. Consumers further have the right to purchase the car based on the metrics deemed valuable to him or her.

    It is also absurd of the author to state that because lawyer fees take a large portion of judgements that the judicial system is largely ineffective. The offending company is charged the penalty, which serves its purpose as a deterrent; and those seeking reparations are free to choose their attorneys at whatever cost is negotiated amongst the two parties. (People CAN choose not to take part in a class-action and proceed individually, if desired.)

    To the main point, though, there were surely many more trade-offs of safety-to-cost than just the gas tank cover. For example, the car could have been made of lighter or heavier alloys than the one chosen for the car. Each of which could have drastic effects on safety.

    Those trade-offs may not have received the same criticism of the gas block, but are none-the-less important. Should every decision lay at the mercy of those who would trade our freedom to choose for maximum life-protection, cars would be a luxury very few of us would enjoy.

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  7. philebersole Says:

    I think the previous comment and other comments on this thread are examples of how belief in an ideology – any ideology, not just free-market ideology – can lead people to suppress their human feelings and common sense.

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  8. imoatamaimoatama Says:

    All this blog, and the subsequent discussion says, is that you are a deontologist, not a consequentalist. OK, different axioms. So you can’t really draw meaningful comparisons.

    You also seem to trust heavily in moral intuition whilst simultaneously admitting that moral intuition can lead one astray.

    Liked by 1 person

    • philebersole Says:

      I think people are responsible for the predictable consequences of their actions.

      In this case, the predictable consequence of declining to add a $13 device to a Ford Pinto was that an unknown number of Ford Pintos would explode and an unknown number of Ford Pinto drivers and passengers would be burned alive.

      Milton Friedman said that the only value of human life is a monetary value and that if the monetary value of human lives lost was less than the monetary cost to Ford Motor Co., then the lives should be sacrificed.

      I point out that the calculation of the value of the human life was made by Ford, not by the customers themselves. It wasn’t as if somebody had said they’d rather risk an exploding gas tank than pay $13 extra for a car.

      I happen to think all moral judgments rest ultimately on human moral intuitions, as refined through the ethical and moral rules of society. That is the only basis you have, ultimately, for judging between a good moral rule and a bad moral rule, or a good consequence and a bad consequence.

      I think Milton Friedman’s view of the Ford Pinto issue is morally repugnant, and I think he adopted this repugnant view because of his total commitment to an economic dogma—namely, that when a free market is operating, the only relevant consideration is maximizing profit.

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  9. Michael Price Says:

    “Here are some problems with Friedman’s argument:

    The contemptuous dismissal of ordinary human moral intuition.”
    That’s not a problem if he ‘moral intuition’ is wrong, which he shows it is. You may have an intuition that Ford should have spent $200,000 per life saved, but what does that have to do with moral facts? Friedman noted that there is a limit to how much should be spent to save each life and rather than “contemptously dismissal” of someone’s else’s estimate of that number he admits he doesn’t know. Then the young man dodges the question of what the number is. But the point is there is a number. There’s a point at which the price of saving a life is too high. Given this why condemn Ford for putting it at one point rather than another? Where’s your evidence?

    “The substitution of a “rational” judgment based purely on monetary factors.”
    Except that he doesn’t substitute his judgment and doesn’t say that his judgment is rational. He merely points out that the young man is not making a principled point. In any case the judgment has to be made on “monetary factors” because money is how we ration resources and we have to ration resources. We would be mad to expend the resources to make a car perfectly safe while other problems, including other dangers, are ignored.

    “A “rational” judgment based on an extreme example that never would occur in real life. ”
    How do you know it would not occur in real life? There are doubtless many ways a car could be made safer. Some of these would cost $40M/car. The reason that you say that this would “never happen in real life” is because if someone were designing a car and had the opportunity to save lives at the cost of $40M each they would not do it. This has nothing to do with profit either if a government or non-profit cooperative were designing cars they wouldn’t do it either because the effort is

    “Privileging a corporate executive to make the cost-benefit evaluation over the person affected.”
    Except he specifically says that consumers should have been the ones to evaluate the cost-benefit analysis. They should be made aware of what the costs and benefits are and decide for themselves.

    Like

  10. Michael Price Says:

    “It is true that moral intuition can lead you astray, and it is necessary to subject moral judgments to a reality check. But that isn’t what Friedman said. He said judgments should be based on a numerical calculation,”
    No he didn’t say that at all. What he said was that you can’t simply pick an arbitrary number and say that’s morality. In fact he REJECTED the argument that because Ford could have spent $13 a car they should have had to fix the car. He’s arguing AGAINST a numerical calculation being the basis of morality. What he’s arguing for is full disclosure. It’s amazing that such a simple point misunderstood, it’s like you don’t care what he says as long as you can condemn it.

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  11. Michael Price Says:

    “Finally Friedman said Ford Motor Co. should not have been subject to a requirement of full disclosure. ”
    No actually he said that they should be subject to a requirement of full disclosure on pain of legal action by consumers. How do you get this wrong? I’m really doubtful about your honesty at this point.

    Like

    • philebersole Says:

      What Friedman advocated telling consumers is that the risk of death by buying a Ford Pinto would be increased by XX percent compared to something else.

      My point was that he did not advocate telling consumers in plain language that they were buying cars with gas tanks that could explode.

      Expressing risk in the way Friedman advocated is basically meaningless. Risk can’t be accurately quantified until after the fact. See Nassim Nicholas Taleb’s THE BLACK SWAN.

      Also, the omission of the safety device did not subtract $13 a car from the price of a Ford Pinto, for the benefit of the consumers. It added $13 a car to Ford Motor Co.’s bottom line, to the benefit of the stockholders.

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    • philebersole Says:

      I admit I don’t know for a fact that Ford’s decision did not affect the price, but this seems like a reasonable assumption, based on typical corporate executives’ attitudes toward product safety.

      If I had been a Ford Motor Co. executive, I would have added $13 a car to the cost of manufacturing a Ford Pinto in order to not have an exploding gas tank.

      I would not have added $200,000 a car to the cost of manufacturing a Ford Pinto in order to avoid an exploding gas tank. Instead I would not have introduced the line at all. I would have concentrated on selling other lines of cars without exploding gas tanks.

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  12. Michael Price Says:

    Oh and about the cartoon, normal people put a value on the life of a child all the time. Do you buy the safest car on the market to transport your kids, or do you buy a cheaper car that’s almost as safe? If you did the later you just put a price on your children’s safety. Have you ever flown with them on an airline that’s not QANTAS when QANTAS had the same route? Then you’ve put a price on your children’s life. Normal people do this all the time, leftists just don’t admit they do it.

    Like

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