Profit Maximization vs Wealth Maximization Essay - …

These considerations thus clearly set Robbins' definition apart from the earlier definitions of economic activity in terms of maximization, despite the undoubtedly important part that the latter conception, in conjunction with the literature on scarcity, played in the emergence of Robbins' view of economics. Robbins' formulation of this view, which sees the essence of the subject matter of economics in the peculiar quality of economizing behavior, attracted the critical attention of economists to an extent achieved by no previous attempt at definition. Several waves of debate were set in motion concerning various aspects of the freshly expounded view. These must now be examined more closely, and their investigation will provide an opportunity to glance at the most important of the opinions inspired by Robbins' work.

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Shareholders wealth maximization is maximization of shareholders purchasing power.

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Ultimately these attacks and the consequent pronouncementsrejecting the concept of economizing as a criterion for defining the nature of economic phenomena provide yet another instance of the similarities between the conception of economics as a science concerned with economizing and the conception of it as a science concerned with maximization. Writers in the eighties of the last century who had considered the essence of economic behavior to consist in the impulse toward maximization had found themselves vulnerable to the objection that this propensity characterizes human activities. The fact that economizing, like maximization, is an operation capable of being performed in widely differing situations means that the use of such a concept as a criterion for defining the nature of the economic cuts across many traditional boundaries. But clearly if a definition is to be rejected as too wide, some area must be accepted as the standard of reference. The stress that economists in the past have laid on the phenomena of the market as the area to which their researches applied makes suspect a definition that sees an essential economic unity existing in activities ranging far beyond this area.

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Maximization as a possible criterion for distinguishing economic phenomena had been clearly suggested towards the last quarter of the past century and even earlier. In its earlier expressions the so-called economic principle usually referred to the maximization of some tangible entity such as wealth and thus bore little resemblance to economizing. However, when maximization is understood to refer to something less objective, such as pleasure or satisfaction, then its similarity to the act of economizing becomes fairly close. After all, the economizing of scarce means in the face of competing arrays of ends is undertaken with the purpose of squeezing as much “satisfaction” out of available resources as their shrewd management will permit. Just as the bare concept of economizing abstracts from the concrete ends at which activity is aimed and the specific means utilized to attain them, so does the idea of getting the greatest return at the least cost. It was seen in an earlier chapter, in fact, that the shift in emphasis to the maximization principle was closely associated with the denial of any specifically economic impulse.

Profit maximization enhances and ensures maximum value for the shareholders’ investment.
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One further aspect of the class of definitions of economics dealt with in this chapter remains to be discussed. Both the conception of economic activity as the pecuniary operations of self-centered economic man and its conception as the process of getting the most for the least facilitate the analysis of such activity by (the same) mathematical methods. In the previous chapter mention was made of a number of passages in the writings of eighteenth-century thinkers in which the force of self-interest in human affairs was likened to the force of gravitation in the physical world. Economists of the nineteenth century who stressed self-interest or the maximization principle in economic affairs were in a position to pursue this analogy far more thoroughly. Thus, Senior, who, as we have seen, stressed the maximization of wealth as an essential element in economic activity, describes this element, like “ Physics,” as “the ultimate fact beyond which reasoning cannot go, and of which almost every other proposition is merely an illustration.”

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It is interesting to draw attention at this point to a somewhat different characterization of economic activity as directed to a single end, which was developed by Robbins himself, and which has been used with great effect by Hayek. This is the view thatrecognizes the economic motive as “merely desire for general opportunity, the desire for power to achieve unspecified ends.” Money has come to be linked with the economic motive, according to this view, because it offers the means to enjoy the widest choice of goods and services that we may desire. (One is reminded of a century-old definition of wealth that saw it, not as particular goods and services, but as the “power” to command goods and services in general.)

These roles and responsibilities clearly narrate their significant part in shareholders wealth maximization.

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The position that the praxeological element occupies within the whole class of social phenomena has been set forth by various writers. Professors Mises and Knight have devoted considerable attention in their writings to the elucidation of this point. Within narrow limits man can be observed and his behavior explained purely mechanically. At this level of interpretationhuman behavior is considered only in the positive terms of stimulus and response; it is completely “caused” in the sense that the problem-solving elements in human conduct are ignored. On higher levels of interpretation, however, the conduct of men involves recognition of their putting forth effort, of their attempt to solve problems—in short, of their human actions.