fredclaymeyer

Wealth maximization

In Posts on April 12, 2011 at 6:44 pm

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I’ve been reading Amartya Sen’s Development as Freedom. One interesting recurring theme in the book is that wealth maximization is not an end in itself. In fact, I’ve begun hearing attacks on the theoretical foundations of wealth maximization from all quarters—Harvard Business School professors, eminent psychologists, and increasingly in casual conversations with other graduate students. From my very limited vantage point, it seems that wealth maximization is an idea whose time has run out.

The crazy thing is that it never made sense. Sen describes the divergent views on value held by eminent past economists, none of whom concluded that money was a perfect proxy for the good. That simplifying assumption was driven not by any coherent worldview—who could argue from principle that life is nothing but money?—but by economists’ own convenience, since money is relatively easy to measure. Wealth maximization’s subsequent metastasis into a supposedly general fact of life is the result of groupthink among economists, sustained by a sophisticated academic language that excluded all but highly trained (and, hence, basically like-minded) people from the discussion. Arrogance, too, played a role: the use of the term “rationality” for such a distorted and stylized portrait of behavior has damaged many individuals and institutions who took the bait.

Interestingly, Development as Freedom was born as a series of lectures, in 1996, to the World Bank. The Bank in the 1990s was the epicenter of many of the worst excesses of neoliberalism, and it’s not difficult to imagine that many of “rationality’s” worst offenders were in the room as Sen was speaking. It’s embarrassing that it took a thinker of Sen’s caliber to point out that the connection between “our economic wealth and our ability to live as we would like… may or may not be very strong and may well be extremely contingent on other circumstances.” But kudos to the Bank for at least inviting him into the room.

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