Thursday, July 09, 2015


JunDalisay posts (9 July) HERE  “Why Profit Maximisation is absurd”
“A key fallacy that is inseparably part of Economics is the idea of profit maximization. But the idea of maximization has its origins in Newton’s Calculus which in turn has its origins in Physics. Smith and Hume never mentioned maximization nor calculus anywhere in their writings on the political economy. In fact, the Wealth of Nations has no equations at all!  So how in the world did it enter and be so fundamental to Economics?
We trace its entry into economic thought through the marginal revolution, specifically with WS Jevons who combined JB Mill’s flawed utilitarianism philosophy (the pursuit of private pleasure) with Calculus.
“PLEASURE and pain are undoubtedly the ultimate objects of the Calculus of Economics. To satisfy our wants to the utmost with the least effort—to procure the greatest amount of what is desirable at the expense of the least that is undesirable—in other words, to maximise pleasure, is the problem of Economics.” WS Jevons
In essence, this combines a bad philosophy with a mathematical tool that is not meant for humans. Mathematics applies to physical, unconscious objects which have no free will, and not to human minds which can change drastically. Through math, you can predict precisely where a ball will fall, but you can never accurately predict a person’s actions, much less those of a society through numerical data. If the latter were possible, then there would be no such thing as recessions, wars, and terrorism. If the latter were possible, then it would mean everything in existence is predetermined, which in turn would destroy the need for existence.”

Read the article. It comes at Adam Smith from a different angle to 99% of others you will read.  I agree with much, but not all, of it but you may be less enthusiastic to read Smith from a different angle, especially on the modern post-1948, false assertions by Paul Samuelson of Adam Smith’s use and meaning of the invisible-hand metaphor.


Blogger Paul Walker said...

Why Profit Maximisation is absurd”. Really? But I would have to say its not. Its a very useful assumption to use when thinking about firms. That Smith and Hume et al did not say much about it is not surprising given that, as Mark Blaug has pointed out, the classical economists did not have a theory of the firm. Classical economics was, as noted by D.P. O'Brien, mainly macro, so micro didn't feature much.

10:15 pm  

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