The Meaning of “Profit”

Without profits, no taxes                                                                                                                                                                   ABC-TV Shark Tank Cast


By Dr. Larry Fedewa (August 24,2018)

Much of our political discourse today demonstrates an appalling lack of understanding of the most fundamental elements of the American economy. There are two kinds of organizations which comprise the United States economy: for profit and not-for-profit. The only engine for making money is the for-profit sector, that is, businesses which buy and sell products and services.

All the money in the economy comes from these businesses. ALL of it. Not-for-profit organizations, including government at all levels, get all their money from these businesses. If these businesses do not have enough money left over from their buying and selling to give some of it away to governments and charities, the not-for-profits starve.

Sounds pretty basic, doesn’t it? But to hear the liberals and students and politicians talk about the economy, you would think that “profit” is a dirty word. They don’t seem to realize that, without profits, they can’t exist! The money they all live on comes from someone’s profits, no matter how it got to them, whether from a charity, a government, or a corporation. No profits, no economy.

ABC-TV doesn’t do a very good job with political debates, but every college student in the country ought to watch a couple of their programs, like “Shark Tank” and “The Profit” to get a clear understanding of the role of small business as the driver of our economy. 

What is a profit? A profit is the money left over after a business receives the money it charges for its product or service and then pays all the costs of producing and delivering that item. Not all economies are based directly on profits the way ours is.

The traditional categories of the different economic systems are 1) communism, where there is no private property and everything is owned by the government; 2) socialism, where only the “means of production and distribution”, namely the farms and the factories, the transportation and utilities, and the natural resources, such as oil wells, forests, mines, etc., are owned and operated by the government and private holdings are owned by individual people and organizations; 3) a variation of socialism is fascism, which enforces socialism with a police state; and 4) capitalism, where all property is privately owned except certain public facilities, such as waterways, highways, and public buildings which are owned by governments.

There are many variations of these categories, especially since the spread of democracies over the past three centuries or so. One current variation is “democratic socialism”, in which the government owns or regulates almost everything, but the electorate “owns” the government. This concept has never actually been tried, but was advocated by one of the 2015 candidates for the U.S. presidency.

Another variation is “democratic capitalism”, in which capitalism is regulated by governments which in turn are elected by popular vote. This is the economic system under which the United States operates right now, and which is under attack from leftist politicians and academics and community organizers.

At the heart of the dispute is the proper role, if any, of “profits”. Currently, profits earned by a business are considered to be the private property of the owners of the business. Profits are subject to confiscation by government taxation, but there are limits to governments’ powers to tax.

The common theory underlying this presumption is that the owners of the business were motivated to start the business by the prospect of rewards in the form of profits. They undertook all the risks and sacrifices necessary to make the business a success as a provider of something that the public wanted enough to pay for. This, of course, is how virtually all the things that people want are made available in America. The motivation for the owners is profits. Without the prospect of this reward, the business owner would not start the business, and the public would not have available whatever that business offers. The economy would collapse.

There is no question that profits are the most effective motivator for encouraging masses of people to engage in socially beneficial activities. One need only to look at communist and other dictatorships past and present to see the effects of other motivators, such as fear, brutality, altruism, or other organizing principles. They pale in comparison to the United States when measured in productivity, wealth, and mitigation of true poverty.

The essence of the anti-capitalist critique may actually lie in a reluctance to admit what the success of the profit motive in western countries says about human nature. There is no denying that the profit motive assumes a certain self-centeredness. At its extreme, the profit motive morphs into a pursuit of money for its own sake, as divorced from any sense of service or responsibility for the common good. This is greed. Greed is an occupational hazard for certain capitalists. Defined as the pursuit of money for its own sake, greed is always evil. One of the challenges of democratic capitalism is how to discourage and punish greed without diminishing the profit motive which keeps the wheels turning.

This challenge itself tells us something more about the human race. It tells us that there are limits to the self-centeredness implicit in the profit motive. First is the expansion of the capitalists’ self-centeredness to include their families and anyone else who relies on them for economic well-being. Anyone who is in business soon realizes that success also means including in the ” tribe” all the customers and/or patients who are being served. A business based on greed does not serve; it exists to be served. For that reason, it is bad for business, particularly over the long run.

The key to promoting a responsible capitalism starts with the tribal instincts of all human beings. Anthropologists tell us unequivocally what we all know instinctively, that humans are tribal animals. The socialization of the capitalist should bring to each of us to an understanding that our tribe extends beyond ourselves, our family, even our nation. The chief moral lesson our parents, our educators and our society should teach is summed up in the traditional Judeo-Christian admonition, “Love thy neighbor as thyself.”

Ultimately, the success of our civilization depends on keeping this commandment, even in a capitalist society.


© Richfield Press, Ltd. 2018  (All rights Reserved.)


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