Occasionally I hear a "theory": economics assumes wealth maximization in explaining human behaviours. This is stated sometimes by economics learners while a small number of economists may also sometimes make statements seemingly supportive to this "theory".
I of course know that economics does NOT assume wealth maximization for explaining human behaviours -- they assume utility maximization instead (but since the readers of "hi,economics" may not have learned the concept "utility", I do not intend to discuss utility maximization in this post). The "theory" of wealth maximization is, however, popular among certain circle of economics learners or scholars.
I indeed encountered a (smart) student who argued with me that wealth, instead of utility, should be maximized by rational decision-makers -- if someone doesn't choose to maximize wealth, the choice is irrational.
Such a viewpoint is not new to me, and I think the student was influenced by a scholar whom I know the identity. Anyway, I had to spend some words to explain to him why wealth maximization is not a tenable assumption. My explanation involves a persuasive but rather difficult argument, known as St. Petersburg paradox, by a mathematician Nicolas Bernoulli. As this is a difficult argument, even if it is persuasive, I don't think the argument can be widely used whenever I encounter believers in wealth maximization.
Recently, I encountered a simple and forceful argument made by David Friedman, the son of the famous (late) economist Milton Friedman. David is not only an economist but also a legal scholar. He got a PhD in physics and originally taught physics. Later he turned to study laws and eventually taught law and economics in law schools. Perhaps thanks to his (academic and family) background and talents, he often makes some points that are interesting though not what a standard economics textbook will say.
In a microeconomics textbook written by him, he says:
"A similar error is the idea that economists assume everyone wishes to maximize his wealth or his income. Such an assumption would be absurd. If you wished to maximize your wealth, you would never spend any money except for things (such as food) that you required in order to earn more money. If you wished to maximize your income, you would take no leisure (except that needed for your health) and always choose the highest paying job, independent of how pleasant it was. What we almost always do assume is that everyone prefers more wealth to less and more income to less, everything else held constant. To say that you would like a raise is not the same thing as to say that you would like it whatever its cost in additional work." (Chapter 4, Price Theory: An Intermediate Text)
I would say the point is so clear and simple. A key point is also that assuming more wealth is better is not the same as assuming wealth should be maximized. Confusing the two assumptions may generate big mistakes. As the two assumptions look similar, this may explain why a number of economics learners (or some scholars) may mistakenly believe that economics assume wealth maximization.
I wonder why I can't make this same point when encountering a criticism from my student mentioned above.
What is a mockery is that some scholars in the field of "law and economics" exactly think that economics assumes wealth maximization. David himself is a such a scholar but he is free from marking the same mistake by some of his fellow scholars.
