Uncertainty, Evolution and Economic Theory

According to Alchian’s paper “Uncertainty, Evolution, and Economic Theory,” the key aim of a company is to exist. He also uses natural selection and evolutionary mechanisms in the real world as analogs for firm wins and defeats, stating that “the commercial equivalents to genetic heredity, mutations, and natural selection are imitation, creativity, and profitable gains.” (Alchian 220) Formalized adverbial adverbial Profit maximization theory holds that the primary goal of a company is to maximize profits. The two theories are contradistinctive in many ways, for instance, Alchian claims that success of a company is based on results and not motivation as stated by other economists who believe in profit maximization (Alchian 211).

The first point of contradiction in the two theories is the goal. In Alachian_x0092_s model, the firm_x0092_s primary goal is to survive which is usually done through increasing of sales, the rate of growth and managerial function. It can also be done through retention and improving the market share. On the other hand, other theorists argue that the main goal of a firm is to maximize profits. Alchian dismisses the objective of profit maximization because he believes that results that are uncertain and unpredictable make the objective of profit maximization become meaningless (Alchian 211-212).

The last area where the two differ is that success is based on the outcome and not motivation where Alchian argues that its outcomes measure the success of a company. Therefore, it does not matter what the company did to achieve success. The act of achievement is sufficient, and it is how survivors are selected in the economic system. This is different from the other theories that state that companies work with the motivation of profit maximization (Alchian 213).

Work Cited

Alchian, Armen A. “Uncertainty, Evolution, and Economic Theory.” The Journal of Political Economy 58.3 (1950): 211-222. http://www.jstor.org/stable/1827159