30 March 2022
My new paper The mathematics of profit maximisation is incorrect has been published in real-world economics review.
Abstract: Profit maximisation is one of the two main optimising principles of neoclassical economics, the other being utility maximisation. In this paper we draw on Chapter 6 of John Maynard Keynes's General Theory to show that the mathematics of profit maximization is incorrect. We show, moreover, that marginal cost, a variable fundamental to neoclassical economics, cannot be calculated. We explore the implications for sticky prices, increasing returns, the shape of the supply curve, and market clearing. Finally, we argue that an important reason for the failure of neoclassical economics is that while it pays a great deal of attention to the influence of future expectations on present decisions, it completely ignores the past.