24 MONOPOLY CAPITAL
25
have. This statement is so good that it seems worthwhile to
rescue large parts of it from the untitled obscurity of the Eco-
nomic Association's Papers and Proceedings. After noting some
points of agreement and others of minor disagreement with
Simon, Earley proceeds as follows:
I have more serious reserva,tions concerning what appears to be
the major economic theorem Simon arrives at; namely, that the busi-
ness enterprise looks for merely satisfactory solutions of its problems
and specifically seeks merely satisfactory profits. That his approach
has led so directly to this conclusion is one of the facts that makes
me especially doubt that it is a satisfactory one. Whatever may be
true of individuals or of other types of organization, I cannot square
Simon's ''satisficing'' behavior with the behavior of the large-scale
American business firm. I agree that the conventional notion of
profit maximization and of general ''optimization'' must be modified.
I contend this is carrying the change much too far. Let me briefly
catalogue the main types of evidence that lead me to reject the
"satisficing'' postulate.
( 1) As a part of my research, I have made a study of recent
management literature, both general and specialized, one of my
hypotheses in doing so being that this literature will reveal the
frames of reference and mores of advanced business management. A
striking characteristic of this literature (except where public rela-
tions is an evident objective) is its systematic focus on cost reduc-
tion, the expansion of revenue, and the increase of profits. There is,
of course, much reference to standards and to the need of remedy-
ing unsatisfactory situations. The drive is always toward the better
and frequently the best, not just the good. Like Samuel Gompers'
ideal union leader, the exemplary man of management seems to
have ''More!'' for at least one of his mottoes.
( 2) Secondly, my questionnaire studies of the practices and poli-
cies of leading so-called ''excellently managed'' companies lead
me toward generally similar conclusions. I have published the major
results of the first of these studies and will not review them here. 7
( 3) The third fact that makes me doubt Simon's postulate as
applied to the firm is the rapidly growing use of economists, market
analysts, other types of specialists, and management consultants by
7 levels. So, too, do high managerial rewards. High and r1s1ng profits
The author's reference here is to James S. Earley, ''Marginal Policies
of 'Excellently Managed' Companies," The American Economic Review,
March 1956.
THE GIANT CORPORATION
our larger businesses. The main function of most of these people is
to help the firm reduce costs, find superior methods, choose ~~e most
rofitable alternatives, and uncover new profi~ opp~rtun1t1es. -:'-s
fhese sophisticated gentlemen gain ~n influence .1n bus1nes.s co~nc1~s
-and I confidently believe they will-profit oriented rat1o?al1ty is
likely to be more and more representative of busi?ess behavior.
( 4) Most of all I am impressed by the rap1~ development .of
tical and managerial techniques that both stimulate and assist
ana ly f d · h" d
the business firms to find the least costly ways o 01ng t ings an
the most profitable things to do. Operations research ~nd mat?e-
matical programming are only the more fancy of this ?rowing
genus. There are also greatly improved forms of accounting a~d
budgeting, improved methods of market analysis, refine1?ents in
business forecasting, and interesting types of nonmath~mat1c~l pro-
gramming. The tinifying character of these new techniques ~s that
they seek to apply the principles of rational problem-solving to
business planning and decision making. .
Let me conclude by briefly sketching the notion of b_us1ness be-
havior that seems to be emerging from my own studies. It falls
somewhere between the old postulate of profit maximization and
Simon's ''satisfactory profit." It fully recognizes the limit.ed infor111a-
tional and computational resources of the firm. It also incorporates
his suggested concept of the ''aspiration level'' and a modified ~rin­
ciple of ''viability." My behavioral postulate coul.d best be ~r1efly
described as ''a systematic temporal search for highest practicable
profits."
The theory underlying it runs, very briefly, a~ follows: .
The major goals of modern large-scale bus1n~~s are ~1?h man-
agerial incomes, good profits, a strong compet1t1ve pos1t1on: and
growth. Modern managemen·t does not view these goals as seriously
inconsistent but rather, indeed, as necessary, one to the other. Com-
petitive strength and even survival, manageme;nt bel~eves, req1;1ire
large innovative and substantial growth expenditures in the rap~dly
changing technical and market conditions of t~e pres~nt day. Since
growth by merger is hazardous and frequently impossible, large and
more or less continuous capital expenditures are necessary. For well-
recognized reasons, management wishes to .minimize outsi~e financ-
ing, so the funds for most of these expenditures must be in~ei:nally
generated. This requires high and growing p~ofits abo~e. d1v1dend
are hence an instrument as well as a direct goal of great importance.
With these goals and needs in view, advanced management plans