The Nature and Justification of Profit…..In our previous article, we analyst whether business primary purpose is profit making. Here in this article we would look at the meaning of profit and the extent to which business profit can be justified. Of a truth, issues pertaining to the nature and justification of profit are interrelated. With regard to its nature, profit tends to be overestimated by an average person as businesses are often assumed to be making more profit than they actually make. It is easily assumed that any difference between the price of a good or service and its actual value is profit. Each time an average person feels short-changed in the marketplace, he or she assumes that profit is soaring, when as a matter of fact this might be due to poor management or inefficient production or marketing.
A common conception of profit is that it is what is left of the gross receipt after all expenses have been paid in a business. It is the surplus or gain from legitimate business activities. As such, it must be earned in a fair and reasonable way. Thus, any surplus gained through lottery winnings or fraud cannot be correctly construed as profit. This idea of profit allows critics to ask for what justifies profit in the sense of what makes it reasonable and fair, and what it is a payment for. With regards to whether or not payment should be made for workers’ wages, raw materials, tax or other marketing or running costs of business, there is usually not much of a debate. These are easily seen as legitimate costs to be passed on legitimately as part of the running cost of business. However, when it comes to profit, construed as difference remaining after all costs have been deducted, questions are asked regarding what it is payment for, how it is actually earned, and why it is truly deserved.
In response to the above queries, it appears reasonable to define profit as what is left-over after all tangible, specifiable and quantifiable costs have been paid. Hence, it is considered to be the reward for some intangible factors that are crucial to business. These would include risk, entrepreneurial creativity, initiative and the deferment of the use of one’s resources.
In addition to the above, profit may possibly be justified on the ground that the desire for profit is a manifestation of a universal desire of all humans (investors, workers, suppliers, consumers) to acquire more than one already has. This argument assumes that if the drive for profit is a universal and innate human attribute, it is beyond ethical scrutiny and moral criticism. However, this line of thought ignores the fact that morality in ordinary life and also in business requires that innate drives are either suppressed or transcended for people to act in morally acceptable ways. Consequently, the attempt to justify profit on the basis of the fact that the desire for it is innate and universal to all humans fails to provide any cogent justification for profit.
Some businesses might want to justify their profit by saying that the fact that they are recording profit is proof that profit is justified and also indicative of the integrity, utility and moral goodness of their business. This position is presupposed in the typical question that “how can our business be doing so well if it is not good”? A major flaw of this standpoint is that it commits the fallacy of circularity. It presupposes the very claim that is in need of justification.
The Nature and Justification of Profit
Another approach that may be adopted in the quest to provide justification for profit is to make a distinction between the goal of the economic system, which is primarily to enhance the economy as well as the overall wellbeing of all stakeholders in an economy, and the goal of business which is generally construed as maximising profit for the owners of business. The goal of maximising profit is considered to be justified if it is consistent with and enhances the attainment of the economic and overall well being of all in society.