Business Profits and the Quiet Life

Abstract

Tiuis note discusscs some matters which arc relevant to the view that business men are more concerned with securing a quiet life than with the maximization of their profits. Before this, however, we summarize the background out of which the question arises. The question is an important one for economics. In order to come to grips with the organization of productive resources, the determination of price levels, etc., at the macro-level of the economy as a whole, economics needs a unifying postulate governing the behaviour of 'firms', the individual businesses which are the decisive agents. Abandon the profit-maximization assumption and general analysis seems impossible. That business will tend to act so as to maximize profits accordingly remains the basic assumption, not only of the text-books but also of the more advanced work of general theorists when they turn from the analysis of social aggregates to the underlying behaviour of business entities. Even in general text-books, however, there may often be noted signs of uneasiness about the validity of this universal presumption e.g. in discussions of 'oligopoly'. Uneasiness is much more evident in specialized discussions of the theory of the firm or the analysis of the behaviour of individual industries, where the question of the individual business necessarily holds a central position. Briefly, three factors involving interplay between theory and empirical knowledge account for contemporary uneasiness about the profit-maximization postulate. First, developments in oligopoly theory have led to apparent indeterminacy on the one hand, or on the other to a determinacy which would be achievable only by some sort of collusion. Indeterminate solutions tend to get rejected not only because they are abhorrent to the drives which make men economic theorists but also because the oligopolies of the real world typically behave in fairly stable regular ways. Yet, accepting collusion businesses do not appear to exploit the situation to anything like the extent of maximum profitability profits of supposedly collusive oligopolies do not differ sufficiently between themselves nor are they out of line with profits in other industries. Second, empirical researches into the details of business decisions have shown that business men often do not consciously look at, or even know, the marginal cost and revenue quantities which would come into any explicit calculations of maximum profits. Third, and under the