A key fallacy that is inseparably part of Economics, along with equilibrium, is the idea of profit maximization.
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*!
*Instead of equality, equilibrium, equations, or 1 + 1 = 2, Smith makes extensive use of ratios, proportions, balance, or 2 : 2, as prices are psychological and not physical in nature. We implement these ratios the most in our DCIT tool. This important difference is a reason why Smith and Hume’s Political economy is to be regarded as a totally different science from current Economics.
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 William Stanley Jevons who combined John Stuart 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.
Math is for Nonliving Things Which Have No Free Will
In essence, Jevons combines a bad philosophy with a mathematical tool that is not meant for humans. Smith wrote a whole chapter explaining the dangers of utility.
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 a 100% perfect prediction of human behavior were possible, then there would be no such thing as recessions, wars, and terrorism, as humans naturally avoid pain. Philosophically, this would imply that everything in existence is predetermined, which in turn would destroy the concept of free will.
Update April 2026
We are making a new math for living things called Qualimath.
Why is Profit Maximization Wrong?
According to Adam Smith, there are 3 kinds of revenue in society to which we add the 4th revenue as donations:
In a healthy society, all revenue is naturally and fairly distributed, with the most revenue formerly going to the landlord class as taxes.
- This was because employment was done personally via apprenticeship, servitude, or exchange.
The establishment of paper money led to banking and therefore regular wages and formal employment. This led to the rise of the business or merchant class over the landlords.
This gave profits a bigger share of the social revenue, compared to taxes. This is why all governments are now in debt.
If more revenue goes to one class than natural, then the other classes get starved of revenue. This then prevents them from doing their role in society well.
If most of the revenue goes to the merchant class, then:
- the working class will have less money to learn new skills and maintain their families, leading to less skills and productivity for society
- the ruling class will have less funds for basic services and be less able to maintain a strong government
This often leads to some kind of crisis which the merchant class can avoid by moving overseas, unlike working and ruling classes who stay stuck with the problem.
It would be like a basketball team where all of the salary goes to the star player, such as Lebron James, and the four other members play for food. This would cause the team to fail and Lebron to simply move to another team to continue getting a high salary.
There is a lot of bullion alternately imported and exported for foreign trade in all great commercial countries. This bullion circulates among commercial countries in the same way as the national coin circulates in every country. This bullion is the money of the great mercantile republic. The national coin receives its movement and direction from the commodities circulated within the country. The mercantile republic’s bullion gets its movement from the circulation between countries.
A merchant is not the citizen of any particular country.He is indifferent on from where he carries on his trade. He will remove his capital and all the industry it supports, from one country to another with very little disgust.
The merchant class ends up concentrating this revenue within the mercantile republic (tax havens) through investments in overgrown sectors such as technology, oil, and financial services, which are among the only remaining profitable ones. These lead to Dot Com bubbles, Oil crises, and Financial Crises respectively.
The monopoly of the colony trade broke that natural balance of British industry. British industry was turned to suit one great market instead of many small markets. In her present condition, Great Britain resembles an unwholesome body with some overgrown vital parts. Her blood vessel was artificially swelled beyond natural by the industry and commerce forced to circulate in it. A small stop in that great blood-vessel will very likely bring the most dangerous disorders on the whole political body.
In the past, big socio-economic disorders have been caused by small ‘stops*’.
For example:
- The 1997 Asian Financial Crisis was sparked by a single country, Thailand
- The 2008 Financial Crisis was caused by a single bank, Lehman Brothers
We predict that a future global crisis after 2018 will likewise arise from a small stop.
July 2021
If profit maximization is allowed, then tax maximization and wage maximization must be allowed too:
- The government must be allowed to imposed the death penalty for anyone who pays incorrect taxes no matter how small
- Workers must be allowed to hold strikes anytime they feel that their wages are insufficient, just as CEOs are anytime allowed to fire employees who do not contribute to profitability or to stop operations that are unprofitable because of high tax dues.
From a philosophical perspective, all these are absurd.
Update April 2026: How Can We Get Rid of Profit Maximization?
Profit Maximization is only possible because it is enabled by paper or digital money. Therefore, the silver bullet solution is to offer an alternative to money to circulate real value in society.
We call this alternative as barter credits, which is the foundation of Points Banking.
Points Banking will circulate value and ensure that there is no profit maxization. Or rather, that there is maximization of profits, wages, donations, and taxes.
Politically, Smith’s solution was to establish perfect economic democracy for all three classes, through the ruling class (thus the name Political Economy). The government would regulate economics, not to control it, but to ensure that no class dominates the others.
A moderate and gradual relaxation of the British exclusive trade to the colonies, until it is rendered free, is the only expedient which can deliver her from this danger in the future. It can turn her capital towards other employments, though with less profit.
By gradually reducing one industry and increasing the rest, this relaxation can restore her industry to that natural and healthy proportion which perfect liberty necessarily establishes. Perfect liberty can alone preserve this natural balance.
We integrate Points Banking with the ruling class to create the Resource Branch of Government as the 4th branch that will supply resources to the Executive.
In this way, corruption will be reduced, since the leaders of the Resource Branch are taken from industry and not elected by the people.
Updates (click to expand)
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