> general equilibrium theory, which predicts that profit maximizing companies maximize social utility
No, it doesn't. It can't, because "social utility" is visible to the market only through the proxy of willingness to pay. If you assume that the marginal utility of money is roughly proportional to 1/wealth (equivalently, that the utility you get from $X in wealth is roughly proportional to log(X)) then what the economy kinda maximizes is total weighted utility, where every person's utility is weighted in proportion to their wealth.
What markets give us (in theory, subject to various conditions) is a Pareto-efficient allocation of resources. And there's a theorem that says that (in theory, subject to various conditions) one can get any Pareto-efficient allocation of resources by doing a bunch of pure money-transfer operations and then letting the market do its thing.
That's nice, but it's only equivalent to saying that the market maximizes social utility if you regard those money-transfers as net-utility-neutral.
So, suppose I have $1M and you have $1K. Under the logarithmic-utility assumption above, an extra $10 for you gains you about as much extra happiness as an extra $10K for me. Consider a transaction in which I find 1000 people like you and pay you each $10 in exchange for what you consider to be $10 worth of inconvenience or pain; I have lost $10K but will be content if I get what I consider to be $10K worth of convenience or pleasure. So we have a possible transaction to which all participants are indifferent: I get a certain amount of happiness; 1000 people each get a roughly equivalent amount of unhappiness; and some money is transferred between us. If money transfers are net-utility-neutral, then by reversing those transfers we get another simpler "utility-neutral" transaction: X units of happiness for me, X units of unhappiness each for 1000 people. So long as they're 1000x poorer than me.
(Is that logarithmic-utility assumption reasonable? Not entirely. I think it's generally held that the marginal utility of wealth decreases faster than that, which would make the factor by which markets weight rich people's utility more important than poor people's utility greater. On the other hand: If we consider the wealth and utility of corporations as well as individuals, we might want to say that a corporation's utility doesn't drop off the way an individual's does. I haven't fully got my head around the right way to think about this so I'll stop at this point.)
There is another part of the theory which says that you get back the full set of Pareto optimal outcomes, by redistributing wealth (e.g. through taxes and welfare). Although see my comment above on the limits of wealth redistribution.
No, it doesn't. It can't, because "social utility" is visible to the market only through the proxy of willingness to pay. If you assume that the marginal utility of money is roughly proportional to 1/wealth (equivalently, that the utility you get from $X in wealth is roughly proportional to log(X)) then what the economy kinda maximizes is total weighted utility, where every person's utility is weighted in proportion to their wealth.
What markets give us (in theory, subject to various conditions) is a Pareto-efficient allocation of resources. And there's a theorem that says that (in theory, subject to various conditions) one can get any Pareto-efficient allocation of resources by doing a bunch of pure money-transfer operations and then letting the market do its thing.
That's nice, but it's only equivalent to saying that the market maximizes social utility if you regard those money-transfers as net-utility-neutral.
So, suppose I have $1M and you have $1K. Under the logarithmic-utility assumption above, an extra $10 for you gains you about as much extra happiness as an extra $10K for me. Consider a transaction in which I find 1000 people like you and pay you each $10 in exchange for what you consider to be $10 worth of inconvenience or pain; I have lost $10K but will be content if I get what I consider to be $10K worth of convenience or pleasure. So we have a possible transaction to which all participants are indifferent: I get a certain amount of happiness; 1000 people each get a roughly equivalent amount of unhappiness; and some money is transferred between us. If money transfers are net-utility-neutral, then by reversing those transfers we get another simpler "utility-neutral" transaction: X units of happiness for me, X units of unhappiness each for 1000 people. So long as they're 1000x poorer than me.
(Is that logarithmic-utility assumption reasonable? Not entirely. I think it's generally held that the marginal utility of wealth decreases faster than that, which would make the factor by which markets weight rich people's utility more important than poor people's utility greater. On the other hand: If we consider the wealth and utility of corporations as well as individuals, we might want to say that a corporation's utility doesn't drop off the way an individual's does. I haven't fully got my head around the right way to think about this so I'll stop at this point.)