“Economic theory makes a fundamental assumption that maximizing profits is the basic objective of every firm. But in recent years, profit maximization has been extensively qualified by theorists to refer to the long run; to refer to management’s rather than to owners’ income; to include non-financial income such as increased leisure for high-strung executives and more congenial relations between executive levels within the firm; and to make allowance for special considerations such as restraining competition, maintaining management control, warding off wage demands, and forestalling anti-trust suits. The concept has become so general and hazy that it seems to encompass most of men’s aims in life.
This trend reflects a growing realization by theorists that many firms, and particularly the big ones, do not operate on the principle of profit maximizing in terms of marginal costs and revenues…”

—  Joel Dean

Source: Managerial Economics, 1951, p. 28; Cited in: Peter F. Drucker, Management: Tasks, Responsibilities, Practices, New York: Harper & Row, 1973.

Adopted from Wikiquote. Last update June 3, 2021. History

Help us to complete the source, original and additional information

Do you have more details about the quote "Economic theory makes a fundamental assumption that maximizing profits is the basic objective of every firm. But in rec…" by Joel Dean?
Joel Dean photo
Joel Dean2
American economics wrtier 1906–1979

Related quotes

Herbert A. Simon photo

“First, most producers are employees of firms, not owners. Viewed from the vantage point of classical [economic] theory, they have no reason to maximize the profits of firms, except to the extent that they can be controlled by owners. Moreover, profit-making firms, nonprofit organizations, and bureaucratic organizations all have exactly the same problem of inducing their employees to work toward organizational goals. There is no reason, a priori, why it should be easier (or harder) to produce this motivation in organizations aimed at maximizing profits than in organizations with different goals. If it is true in an organizational economy that organizations motivated by profits will be more efficient than other organizations, additional postulates will have to be introduced to account for it.”

Herbert A. Simon (1916–2001) American political scientist, economist, sociologist, and psychologist

Simon (1991) "Organizations and Markets:" in: Journal of Economic Perspectives. 5 (2 Spring 1991): p. 28.
1980s and later

“The finance conception of the modern corporation, which currently dominates, emphasizes control through the use of financial tools which measure performance according to profit rates. Product lines are evaluated on their short-run profitability and important management decisions are based on the potential profitability of each line. Firms are viewed as collections of assets earning differing rates of return, not as producers of given goods. The firm is not seen as being a member of only one industry. Consequently if the prospect of an industry in which it participates declines, the firm disinvests. The problem for management from this perspective is to maximize short-run rates of return by altering product mix, thereby increasing shareholder equity and keeping the stock price high”

Neil Fligstein (1951) American sociologist

Source: The transformation of corporate control, 1993, p. 15

Kenneth Arrow photo

“[The decisionmaking role of the firm has progressed from the neoclassical standpoint of profit maximization to sales maximization, utility maximization, and satisficing. From the Operation Research point of view] …the ideal picture is that someone, presumable the firm that hires the operations researcher, hands him, on a silver platter, an objective function. By talking to the engineers, or by looking into a few scientific laws, he determines the policy alternatives available and also the model”

Kenneth Arrow (1921–2017) American economist

Source: 1970s-1980s, The Economics of Information (1984), p. 55 as cited in: Demetri Kantarelis (2008) " Book Review: Title: Theories Of The Firm 2nd Edition http://www.inderscience.com/books/TOF_american_econ_review.pdf". In: The American economist. Vol 52, Nr 1. p. 117

Igor Ansoff photo

“This theory maintains that the objectives of the firm should be derived by balancing the conflicting claims of the various 'stakeholders' in the firm: managers, workers, stockholders, suppliers, vendors. The firm has a responsibility to all of these and must configure its objectives so as to give each a measure of satisfaction. Profit which is a return on investment to the stockholder is one of such satisfactions, but does not receive special predominance in the objective structure”

Igor Ansoff (1918–2001) American mathematician

Source: Corporate Strategy, 1965, p. 34; Cited in: Russell L. Ackoff (1994), The Democratic Corporation. p. 37

“If profits are a condition of successful growth, but profits are sought primarily for the sake of the firm, that is, to reinvest in the firm rather than to reimburse owners for the use of their capital or their 'risk bearing,' then, from the point of view of investment policy, growth and profits become equivalent as the criteria for the selection of investment programmes.”

Edith Penrose (1914–1996) economist

Source: The Theory of the Growth of the Firm, 1959, p. 30

“The purpose of this book is to show how economic analysis can be used in formulating business policies. It is therefore a departure from the main stream of economic writings on the theory of the firm, much of which is too simple in its assumptions and too complicated in its logical development to be managerially useful. The big gap between the problems of logic that intrigue economic theorists and the problems of policy that plague practical management needs to be bridged in order to give executives access to the practical contributions that economic thinking can make to top-management policies.”

Joel Dean (1906–1979) American economics wrtier

Preface
Managerial Economics, 1951

“I claim that the central goal of managers in the past hundred years has been to make sure their firms survived. To promote survival they proposed various forms of control, both inside and outside the firm. Internally, control was oriented to ensuring that organizational resources were deployed so that top management could be confident that their directives were being executed. Externally, this control was oriented toward establishing stable relations between competitors to promote the survival of their organizations.”

Neil Fligstein (1951) American sociologist

Source: The transformation of corporate control, 1993, p. 5

Kevin Kelly photo

“In the network economy a firm's primary focus shifts from maximizing the firm«s value to maximizing the network's value.”

Kevin Kelly (1952) American author and editor

Out of Control: The New Biology of Machines, Social Systems and the Economic World (1995), New Rules for the New Economy: 10 Radical Strategies for a Connected World (1999)

Harold Demsetz photo

“The mark of a capitalistic society is that resources are owned and allocated by such nongovernmental organizations as firms, households, and markets. Resource owners increase productivity through cooperative specialization and this leads to the demand for economic organizations which facilitate cooperation. When a lumber mill employs a cabinetmaker, cooperation between specialists is achieved within a firm, and when a cabinetmaker purchases wood from a lumberman, the cooperation takes place across markets (or between firms). Two important problems face a theory of economic organization—to explain the conditions that determine whether the gains from specialization and cooperative production can better be obtained within an organization like the firm, or across markets, and to explain the structure of the organization.”

Harold Demsetz (1930–2019) American economist

Source: Production, information costs, and economic organization. 1972, p. 777, Lead paragraph

“The mark of a capitalistic society is that resources are owned and allocated by such nongovernmental organizations as firms, households, and markets. Resource owners increase productivity through cooperative specialization and this leads to the demand for economic organizations which facilitate cooperation. When a lumber mill employs a cabinetmaker, cooperation between specialists is achieved within a firm, and when a cabinetmaker purchases wood from a lumberman, the cooperation takes place across markets (or between firms). Two important problems face a theory of economic organization—to explain the conditions that determine whether the gains from specialization and cooperative production can better be obtained within an organization like the firm, or across markets, and to explain the structure of the organization.”

Armen Alchian (1914–2013) American economist

Source: Production, information costs, and economic organization. 1972, p. 777, Lead paragraph

Related topics