Martin Wolf had a fascinating comment in the FT yesterday. Referring to books by Prof Colin Mayer of Oxford University (entitled Prosperity) and Jonathan Tepper and Denise Hearn (entitled The Myth of Capitalism) he argued:
These books suggest that capitalism is substantially broken. Reluctantly, I have come to a similar conclusion. This is not to argue for the abandonment of the market economy, but for better companies and more competition.
In essence Martin Wolf says the idea that the company is a profit maximising entity is wrong.
Anyone who has run one knows that this is true. You could not profit maximise a company if you tried because if, as Wolf argues, you did you would not concentrate on the purpose of the business, and if you forget that you would not make any money at all.
But what does this mean? I suggest three things.
The first is in economics. This subject still assumes, and so teaches, that businesses profit maximise. They don't. Because they can't. Because they don't have the data to do so. And because the truth is they know that this is the surest way to destroy long term value. So they have other goals instead. Like growth. Or product innovation. Or stability. Or customer satisfaction. But never profit maximisation. So it is time economics stopped teaching soemthing that is false. Not just wrong. But false.
The second is in law. This is with regard to the legally stated purpose of a company. In many countries this is, supposedly, to profit maximise. In the UK the requirement is different, but requires that the interest of the members comes first and this is assumed to be a proxy for profit maximisation. The result is a falsehood is promoted as to the purpose of a company, and business itself. This is another falsehood whose time should come to an end.
Finally, there is accountancy. It is assumed by modern accounting standards that accounts are only for the benefit of investors, because based on the premise that companies only exist to profit maximise no one else matters. That is also false. In fact, profit is a residual consequence of everything else matttering. But apparently accountancy does not undertsand this. It's also promoting a falsehood. And it delivers the wrong data as a result.
The myth of profit maximisation has to end.
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What is new here? I studied economics at Uni 30yrs ago and theories of the firm covered all this ground.
What is new is that nothing has changed and so this still needs to be said
Profit max is an assumption not a rule. This is known by students and those who graduate and work in business..theories of the firm has been addressed in detail endless times. No news
No it not known
It is taught as if fact
And as I note the law and accountancy reflects that false claim to be fact
You are talking nonsense
Well it wasn’t taught as fact at Durham 30yrs ago!! Indeed that’s why the endless strands of theory of the firm exist because it isn’t taught as fact!!!
Maybe undergraduate courses have dumbed down since I was at uni.
Almost all microeconomic theory is depednent upon the assumption
Clearly you were not paying attention
Richard,
ALL theories rely on assumption – by definition. That’s what makes them theories.
That doesn’t mean they are wrong, or useless.
By what you are saying – essentially that assumptions make something useless – I assume you have made no assumptions in any of your work?
Of course I have
But I try to make them realistic
And clear
And challenging assumptions is what academics do
“And challenging assumptions is what academics do”
So I assume you’ll be happy enough to let me challenge yours then?
What you are saying is that your assumptions are right, but other people’s aren’t.
I think a lot of people would disagree with a lot of the assumptions you have made. Not least this one – which I don’t think you really understand the theory behind in the slightest.
I could name some of the guesses you make when you made your tax gap calculations, economic predictions or of the many simply massive assumptions you make when talking about MMT or “People’s QE”. MMT is a theory which relies on some simply massive assumptions, but you are happy to say that is the truth, yet other well tested theories (not least the theory of the firm as discussed here) are utterly wrong.
You have just assume that the theory states that businesses maximise profit – when the theory doesn’t even state that.
The theory actually states that companies ATTEMPT to maximise the well-being of the company to secure it’s long term future. Whilst this includes profit, it also includes investment, customers and it’s staff, and many other variables besides. And because we don’t live in a world of perfect information, most of the decisions made are not perfect either. What is important to the model though, is that companies are on the whole trying to make the best decisions they can.
You seem happy to criticise others when they accept that there is a limit to the information we have – like your constant criticism of GERS – but then are happy to make stuff up as you go along with the barest research or understanding.
With respect, you live in a parallel universe if you say most microeconomics does not assume profit maximising firms
If you’re hear to talk nonsense I am certainly not interested in engaging
Go and play silly games elsewhere
No, microeconomics does not assume profit maximising firms at all, and certainly doesn’t assume that is the only driver of a firms behavior. If you had any idea about the theory of the firm you would understand this.
What you have done is take one relatively small bit of firm theory, then misunderstand even that whilst making rather large assumptions about what is taught and what matters to economists and companies alike.
All you have done is misunderstand that MC=MR equation which relates to marginal costs and marginal revenue – and only relates to maximising profit per unit, and not necessarily overall profits.
But the more important point is that you are happy to make claims that microeconomics is wrong, because they make assumptions. However by the very same brush you make (very obviously false) assumptions and claim that you are right.
I’ve seen you claim that your Tax Gap calculation is correct (despite making huge, unverified assumptions), but HMRC are somehow wrong because they make some much smaller assumptions, which they have data and statistics to allow them to quantify their potential errors. You then claim your work is more accurate than theirs.
Doesn’t this make you either a total hypocrite or a charlatan?
I’ll ignore ytour personal slurs and instead laugh myself silly that you think any firm can do MC = MR and that maximising every product’s return is different from doing so for the firm
Don’t bother to call again
I really don’t like trolls who do not understand what they’re writing
You seem more than happy to engage in personal slurs.
But again, you don’t seem to understand even the basics. MC=MR is a relatively simple calculation, and most firms will do this on some level to ensure they don’t over produce stock. Some more scientifically than others, but the larger firms typically have very good estimates of what they are likely to sell.
But according to you, because these calculations use estimates and assumptions, they must be wrong. Totally different to the estimates and assumptions you make. Which are right. Because you are somehow infallible.
And I was trying to explain to you (but again you seem to have totally ignored or simply not understood) that MC=MR does not extend to the firm as a whole. This is despite you writing a whole article saying it does.
I am pretty sure I have a good understanding of what I am saying. A degree, a PhD and a post doc. And a couple of decades experience in the economics side of business taxation. I suppose you have real world and and academic experience as well? Because last I checked you were an accountant, but have no academic qualifications to speak of and your business experience seems limited to a small accountancy firm and various small campaigning groups.
Which rather shows in your blog – which should be titled “basic misunderstandings of economics and logic”.
You made a pretty bad impression on me in Beirut and having had a look through some of your work and your blog, I now understand why.
Let me summarise
You don’t like me
You wish to suggest I am unqyakified
And have achieved nothing
But you know I was. Keynote speaker in Beirut
For a reason
So what you actually want to do by being here is personally malign me when you have no other way of arguing
And you do so anonymously
It’s Not impressive on your part is it?
Oh, and you need to appreciate that businesses do not do mc = mr. Go to any supermarket and think about it. It should, if you have some wit, take you seconds to realise why not
In the meantime, please stop wasting my time
You’re right, I don’t like you. I don’t seem to be alone in that. But given that you don’t seem to like anyone who doesn’t agree totally with what you say, we’ll call it even shall we?
You are arrogant and unable to admit that many if not most of the things you spout as truth are in fact simply wrong. You are more than happy to malign and criticise others yet are unable to take any criticism yourself, and apply totally different standards to the work of others that you apply to your work.
Some of that may also stem from your repeated claims to everyone who will listen that you invented Country by Country reporting. When last I checked it was already a topic for discussion by GEISAR for the UN in the late 1970s. I assume that wasn’t you back then.
You are unqualified as far as I can tell. You have no training, experience or qualifications in what you profess on (and it certainly shows in your knowledge of basic economics).
You weren’t THE keynote speaker in Beirut. You were one of many. From memory there were over 30 over the two days. I’ve also been a “keynote” speaker at various UN gatherings. Do you want a medal for it?
When I first posted though, it was not to malign you – it was to ask you some basic questions. Which you have utterly failed to answer other than in a Punch and Judy fashion. Instead you decided that it was better to insult me, declare (unsurprisingly) that I was wrong and that you were, of course, correct.
“Oh, and you need to appreciate that businesses do not do mc = mr. Go to any supermarket and think about it. It should, if you have some wit, take you seconds to realise why not”
“Third, Phil was just wrong. Business cannot profit maximise at MR = MC: that guarantees a loss and also assumes each price is individually negotiated but he claims businesses actually act as if it is true. They do not. He is talking pure BS”
And here we are back to your lack of understanding. Business DEFINITELY do MC=MR. Especially supermarkets. The whole of supply chain management, last minute stock control/inventory management and pricing relies on it. Notice how in your supermarkets alchohol prices go up at Christmas….well that’s MC=MR at work. Every major supermarket aim to minimise wastage and carried stock and maximise sales and price. Which is exactly MC=MR.
Prices do not need to be individually negotiated for MC=MR. The price level needs to be determined (through research or more commonly competitor comparison) and the marginal costs determined. I think you have gone and read a wikipedia definition of pricing maximisation and have misunderstood negotiation to mean at the individual transnational level, when in reality it means at the price discovery level, for the product as a whole rather than each sale.
I’m really not sure how you get to your claim that MC=MR guarantees a loss. I think you are just making stuff up, honestly. But of course you could try and explain why this would be the case (good luck with that).
You would have though that knowing how much of something you can sell, how much for and what it costs you to make it would be rather important factors when trying to achieve a profit. Indeed, one of the big problems facing small business or new markets is that they don’t have the means to conduct this research, so make mistakes in gauging the size of their market, demand for their product or the price they can sell it at. It’s a common reason for failure for a small business to produce too much stock – rather highlighting the importance of MC=MR.
Of course, if you had any real clue of what you were talking about you would understand that without perfect data you have to make estimates and assumptions when dealing with this problem, but ALL serious firms take huge care to do this. Market research and sales data exist for a reason – all while knowing it is not a perfect indicator of the future.
In simple terms though, it is important for firms on such a basic level. Produce too little and you miss sales – thus missing profits. Produce too much and you have overstock or have to reduce your prices – again not maximising profits against marginal costs. It is an acknowledgement of the fact that demand is not unlimited.
What of course this also means is that firms don’t only seek to maximise simple profits. They seek to maximise their long term potential – which involves many more things than pure profit. Anyone with an understanding of business or the theory of the firm would understand this – investors, accounting and the law certainly do which is why they take such importance of things other than pure profit into account.
Your claim that profit is all that matter flies in the face of reality. There are plenty of loss making companies out there, who have been doing so for long periods, yet still have plenty of investors – because short term profit maximisation is really nowhere near as important as the long term security and prosperity of the company.
From memory, Amazon (founded 1994) didn’t make a net profit till around 2009. Now it is one of the biggest companies in the world by market cap. Aston Martin has almost never made a profit in it’s 100 odd year history, yet it is still with us.
But of course, according to the infallible Mr Murphy, companies only care about profits, right?
I am going to ignore the personal silliness in here. As a matter of fact I do have a degree in economics, am a professor of international political economy and have other qualifications. You make yourself look rather silly by claiming otherwise.
And the UN called me a keynote; I did not.
And whilst you may not have liked what I said, I can assure you that others did. The feedback has been very good.
So let’s just deal with MC = MR.
And let’s think about a supermarket.
Let’s take a product – one on 25,000 products – selling for £1
Did they buy it for that? I doubt it
What the marginal cost of one extra sale? The unit purchase price? Maybe a tiny bit of labour to get it on the shelf? Anything else? No. And MC can of course include changes in fixed costs but lets not pretend there are any for one extra unit of sale in a supermarket
So, a supermarket should sell at near enough cost…..
But they don’t
They make small margins but odd products apart they do not sell at MC
So MR does not equal MC
And the point can be repeated time after time after time
You say this is how businesses work
Might I ask how many you have worked in, let alone actually run, or done pricing for? I suspect it is none
So shall we move on? I have good reason for what I said. Every single element of it
And you? Apart from dogma what have you got to offer?
You have an undergraduate degree, and are a Professor of practice – a title secured by your COFFERS funding. Not through your academic work or standing. Not a full or tenured Professor, and I can’t find any academic postgrad qualifications. If you did, you would probably have an understanding of what is very basic economics – dare I say it, even logic. Most business owners understand this MR=MC relationship at some level.
It really boils down to produce too much and you will have to sell for less, produce too little and you won’t make as much as you could.
You were the one who made a point of saying you were a keynote speaker – like it’s a big deal.
But yes, let’s deal with MC=MR.
Once again it is very clear that you don’t understand what you are talking about. If you did then you would also know that:
Marginal Profit (MP) = Marginal revenue – Marginal cost.
Following from that, if MR > MC, MP is positive so more should be produced, and if MR MR side. Because it hasn’t sold any yet. As it sells more and more, those fixed costs are recouped and the variable costs dominate. Eventually though, you simply can’t sell any more, and are left with excess stock – which costs you money to make and store, let alone any losses faced from discounted sales, and your marginal profit, per unit, starts to reduce, and then eventually MR=MC. It is at this point, you are making and selling as many as you can at the most optimum relationship between revenues and cost. You seem to think that because MR=MC you will make no money. When the relationship simply doesn’t tell you that, or anything of the sort.
That does not mean if you sell more you won’t make more in total revenues, but you are exposing yourself to risk by doing so – as expressed above.
“Might I ask how many you have worked in, let alone actually run, or done pricing for? I suspect it is none”
I thought you were ignoring the personal silliness. But regardless, apart from my academic work and my consulting work, I have (and currently) run 5 companies including a recent startup, worked in about the same more and have done economic, financial and tax modelling work for hundreds. More if you count the software. I lose count. Current clients include a major phone retailer and a large vehicle manufacturer.
Who I assure you run MR=MC models. All of them do. I would go as far as to say the major reason small retail businesses fail is because they don’t work out in any sense what their MR=MC curve looks like, overestimate likely sales then go ahead and order too much stock.
They spend lots of time and money working out how much something will cost to produce, what they can sell it for and how many people will buy one. Supermarkets have incredibly detailed data sets and predictive models for how much they need of every individual item, in any given store, on any given day. The models aren’t perfect but the idea is to maximise profit by having the least necessary amount of stock to make the maximum amount of sales with the lowest amount of wastage. At this point, if they get it completely right, MR=MC, and they will have maximised their profits. I can tell you for free, that these companies have this down to tee, for the most part. Nobody exactly knows where the peak of the MR=MC curve is, but the motor company I have consulted with sold over 600k units last year. Their year end excess stock (of which most were demonstrator models) was under 0.5% of that total. They are even dialing back production at the moment because they forecast lower sales next year.
Which tells us nothing about if they are making a net profit or not.
Oh, and I do a fair amount of work for the UN. Development economics and tax stuff for the most part.
“I have good reason for what I said.”
If you call not understanding a good reason, sure. You could help yourself a lot by simply understanding the word “marginal”.
“Apart from dogma what have you got to offer?”
Basic, well understood economics in this case.
Wow, you are obsessed, aren’t you?
What’s the beef?
Jealousy?
There’s something weird going on here and for your sake I think this needs to come to an end.
As for the claims – let’s just have your name – because right now they’re just BS
And I suspect your clients would be very surprised to hear their success is all down to a tax consultant.
But whatever it is, unless you make full disclosure your time here is up
PS I am most amused that you claim to do MC = MR in a telecoms. The marginal cost of a telecoms contract is as close to zero as any supply can get. Oddly, I have not seen them priced that way. Clearly your clients ignore you.
Taking a practical tack – the off-shore wind project in North Wales Gwynt-y-Mor was developed by a number of companies who also owned part of the project. One, called Fluor, which specialises in engineering, procurement & construction, decided that one important part of the project (monopiles) would be sourced from China (cheaper than Euro-sourced prioducts and thus consistent with profit maximisation from the PoV of the project) . 100-odd monopiles were delivered – well North of 10,000 tonnes and found to be unfit for purpose (somebody had not done Q.A in China) and sent back to China. Anti-profit maximisation was then enhanced as the project partners reached for lawyers. There is thus a very fine line to be trod between prudent purchasing and “profit maximisation” – I will leave readers to speculate which side of the line Fluor stood on.
BTW: all the above has chapter & verse on the Internet
Jason
Richard is right.
For far too long the wrong things have been taught in MBA’s and profit maximisation (PM) is one of them.
PM renders corporate commitments to its people and the environment as nothing but guff.
Theories of the firm are not static and change and debate must be accommodated. But not according to you. Think again.
There is a continuum between nothing and a theoretical limit, along which it is possible to travel a substantial distance in the real world… economic theory teaches a limit…that is it.
I am sorry
You are in denial
And that makes you a supporter of the status quo
Wow – that is way too abstract. That is decoupling theory from reality. That’s why we have the world that we have now.
It takes no account of learning or innovation at all. It’s a theoretical dead end. Stasis.
Can I recommend a ‘Prac-ademic’ approach instead developed by one of my MBA tutors? It keeps things a lot more real and grounded.
Richard wrote: “You could not profit maximise a company if you tried because if, as Wolf argues, you did you would not concentrate on the purpose of the business, and if you forget that you would not make any money at all.”
For a glaring example of what can go wrong if profit maximisation is the primary, if not sole, aim just look at RBS. They got just about everything wrong prior to the GFC of 2008 and continued on much the same track thereafter. The reckless pursuit of expansion to increase profit brought about their downfall. The exploitation of customers by their GRG involved asset stripping, deception and fraud (if using forged signatures on “agreements” isn’t fraud, I don’t know what is). They’ve also systematically set about estranging their retail customer base through mass closure of branches particularly in rural areas, causing real difficulties for small businesses and private individuals.
Thanks Ken
Good example
The American owned high tech company I worked for in Manchester during the 1980s always closely monitored quarterly billing as our target. Before every quarterly deadline we would push as much equipment as possible out of the doors, some of which was into bonded warehouse to boost figures. The US bosses never bothered us with profit targets.
I no longer work in that industry but I do know the US bosses currently want its UK division to make a 6% return on capital deployed. Sales are about $250M p.a. from the UK operation and quarterly targets loom large on managers.
What’s the biggest company you have run Richard?
Care to name it?
No
Because I do not trust your motives
Few have had more than 100 employees
You do often cite your pedigree in business Richard to try and enhance your credibilility.. distributing trivial pursuit however hardly makes you a captain of industry.
I have never claimed to be a captain of industry
I am a UK chartered accountant
I founded and led a firm of accountants for 15 years
And I have been a director of more than a dozen SMEs
You can dismiss that if you wish but it’s a lot more entrepreneurial than the careers of the vast majority in right wing think tanks, the Tory party and its MPs and most who claim to be dedicated to what they call free enterprise
Jenny
Do you care to share with us what you do for a living?
I sort of disagree with you Richard, The purposes of trade have long been shown as variable in anthropology, even to the extent of giving a monopoly to the other when you can make that stuff yourself – in order to keep enjoying the trading event. We’ve long had cooperatives that don’t prioritise profit. Maximising came in because optimizing was so inadequate and we also had ‘satisficing’. Whatever, time and strategic consideration of the business cycle would also play a part in pricing for market share, with an eye for large market share in upswings with preparedness for current losses. Stakeholder frameworks were standard from the late 70’s (Mitroff etc.). I would guess I feel the problems with economics lie in preparedness to avoid and exclude complex behavioral issues (including criminality and the Snollygoster) exclude scientific reality and starting in the wrong place. What put me off it as a discipline tended to be lack of anything I recognise as scientific argumentation and quick lapse into stuff we need literary theories to understand (that is spot only rhetoric is involved). Some of the over-simplifying in teaching was down to poor undergrad quality, not politics or what could be found deep in (Veblen, Soddy, Minsky, Polyani etc). The subject is taught on the basis of myths and in politics and the BBC one might think it all comes from right-wing think tank nutters. The ‘real stuff’ has long been there for diligent students (and staff). You are right, of course, that long debunked myths continue in the mainstream. I’d add much as they do in religions. Keep up the good sense mate and maximise the de stressing!.
But most economics does teach this
And law does reinforce it in mean countries
And so does accountancy
And if the likes of Martin Wolf agrees that the idea has been pervasive then I think my argument was right
Well, I did say ‘sort of’! You can be assured I didn’t teach it. I wasn’t saying it isn’t or wasn’t pervasive, more that a great deal of economics teaching is reduced to ‘economics for dummies’. It is thus too easy to find strawman models and attack them as a consequence. If we take so-called basic texts, say of Mankiw, the critical commentary will easily exceed the so-called basics by at least a factor of ten. Your argument is correct, it’s just that there is more, including it being around for a long time without getting mainstreamed. Most manufacturing firms I’ve been involved with paid no heed to any of it, except in cost control and strategic-tactical use of plant and hiring amongst plenty of guesstimates and rule of thumb models. In class you might use a range of assumptions like profit maximisation and perfect markets to get at marginal costs, break even and pricing, always emphasizing practical and theoretical uncertainties. Then an actual manager might present a practical project from prototype through an actual business model and what mattered in her company. The latter would always challenge assumptions in the theory of the firm. The big questions are about new and old models (public sector) that don’t screw us before we start with political assumptions disguised as technocratic. Profit maximisation as though this itself gives us a decent society has long been one of these, partly because it is easy to do its sums and imagine all a country’s organisations operating to this standard is Nirvana. Other models of organisational focus have long been around – love, design around competing on technology, excellence, quality, mission, return per employee and the rest. I still agree your basic thrust. We need something new and thought through.
You are, of cours, right
Of course some economics recognises complexity
And of course real world managers do nothing like what economics says. MC = MR is so little understood in any case that this is good news: marginal analysis guarantees a full costing loss.
But the truth is, as Wolf says and as I do too, Friedman’s maxim on profit maximisation persists as the core belief and dominates.
And that is what matters
And requires challenge
Do we need more competition? It seems a rather wasteful exercise at times.
If the authors mean competition in the form of more companies and less corporations then that has merit for a properly functioning market.
The best form of marketing though is to make excellent products and provide excellent customer service. Word of mouth follows. Also being seen as a company that pays its suppliers fairly and on time and is a good employer should also be in the mix as should their environmental record.
As someone who accepts that markets need to exist for me it is the assumptions behind the profit making that need to be focused on.
There has to be a reasonable rate of return but who decides that? The short termism of the market actors that’s who. Will Hutton talked about this in his 1990’s book ‘The State We’re In’.
The current mode of maximisation leads companies to eat themselves – consuming the wages and pensions of their staff, selling off plant and other assets, cutting corners on safety and environmental standards, moving production abroad to let the State pick up the pieces, cutting staff so that there is more ‘self serve’ on line so customers are actually solving their own problems, reducing R&D and expanding products by expensive, debt fuelled, risky acquisitions – all in the name of short term returns.
And then you get them spending money (usually borrowed) that could go into investment on buying their own stock to keep the share price up much to appreciation of the (now) fewer but larger investors.
Short-termism rules and that needs to change. That’s why I support Steve Keens assertion that stock holding should be made more long term – a minimum of 5 years he advocates. Let’s try it for goodness sake.
In the journal of Behavioral and Brain Sciences recently it has been argued shamanism is our first organised profession. There’s a paper by Singh, along with more than two dozen commentaries from researchers in a host of fields, arguing that shamanism develops as specialists compete to provide magical services to their community. The outcome is a set of traditions that hacks people’s psychological biases to convince them that they can control the uncertain. We should all keep this in imnd when trying to form honest systems and do something different than yesterday. My thinking has changed a lot since The Joy of Tax and Richard’s attitude to proper concerns. Good sense doesn’t need wizardry. Academics can be seen (and often are) as a chattering class safe in their sinecures with arguing just a way of life with a bigger share of the butty than merited. If I quibble, I respect that what he talks about could be done tomorrow if we weren’t caught between sloganeer politicians and a slogan demanding ‘mejared’ public. Colin Mayer has a few books out with schemes of action – the other one alluded to above is in the Max Keiser league. If economists receive ‘money tax green’ and particularly MMT as statements of the bleeding obvious (this has been the majority in my experience) and get into ‘it’s all been seen before’, they miss and more likely deliberately exclude that their subject is not widely deliberative and has led us to social and resource precipices. Business school “theory” is mostly junk and political (see Martin Parker) and one can only become learned in it as one could in phlogiston theory. It’s much more important that we understand why money-tax-green projects are resisted in the very strong evidence we are destroying our substrate of life and I have it that much of the resistance is shamanism and economic homily. Money-tax-green is actually up against hidden argument on military dominance, financial piracy and staying ahead in a dominance game that plays well in silence to ignorance, Economics is the filibuster of this game. Questions on how we go globally cooperative and achieve self-control and policing of a very new system are generally avoided or subject to homilies on human nature as facile as those of economics for dummies. That we’re not doing something relatively simple and experimentally testable is a sure sign superstition is in dominant play.
Richard, perhaps you are still tired from all your travels; but I was surprised at the lack of respect you showed Phil. It is not like you to initiate a defend attack spiral and not consider the knowledgeable points he made about microeconomics.
First of all microeconomics has more than one theory, e.g. the agency theory which Sumantra Goshal was so critical of in marvellous 2003 essay Bad Management Theories Are Destroying Good Management Practices, i.e. The challenge in management sciences lies in what he calls a “double hermeneutic”. While bad theories in physics don’t change the path of electrons (they can’t read, and, if they could, they wouldn’t change simply because elite scientists said they should), bad theories in the social sciences, including microeconomics because it must include management, are read by practitioners and turned into practice.
The inference in the Companies Act is that the shareholder is primus inter pares and this has been distorted by company policies to become profit maximisation instead of optimisation. Now it has been reinforced by bonuses based on shareholder value, which really put the cat among the pigeons.
The real villain in my thirty years experience in research and consulting is management, and the systems it puts upon its company. It is also the elephant in the room when it comes to understanding productivity. This is yet another result of bad theory in microeconomics – a subject many macroeconomists do not really understand.
I humbly suggest you address the issue epistemologically and not as theory, and resume a gentler discussion.
I have no regret
First, the point I made is commonly known. If not Wolf would not have highlighted it as well
Second, I made the epistemological point
And discussed the consequence
Third, Phil was just wrong. Business cannot profit maximise at MR = MC: that guarantees a loss and also assumes each price is individually negotiated but he claims businesses actually act as if it is true. They do not. He is talking pure BS
And his real agenda – personal abuse – was always latently present and did come out, as I expected
After years of doing this I have a sense for trolls
Phil is a right-wing troll
And if you had suffered them as much as I have you’d have no time for them either
Just as I have little time for those on the left either
Just read Phil’s diatribe. Ooer. Backing off slowly in your direction.