ABSTRACT
In everyday business terminology, the term “profit” has a fairly wellunderstood meaning (constructed, in the main, out of accounting categories). In considering the ethical acceptability of business profits, however, it is necessary for the economist first to disentangle the various analytically separate elements that together comprise such business profits. As is well understood in elementary economic theory, most of these separate elements turn out to be identical, in their economic significance, to nonprofit elements. The owner of a business may work long hours; at least part of his business profits must be seen as the equivalent of the wages he could have earned by working for another firm. The owner of a business may have his own funds invested in his firm; part of his business profits must be seen as the equivalent of the market interest income, he could have obtained by investing at the market rate of return in, say, corporate bonds. It is plausible, therefore, to assume that ethical acceptability of such nonprofit elements of accounting profit raises no new questions beyond those generally relevant to nonprofit incomes in capitalist society. The sense in which business profits pose a special challenge for an ethical appraisal of capitalist distribution, therefore, arises strictly from the residual “pure economic profit” element contained in business profits. After filtering out, from accounting profit, all elements that can be construed as market return on capital owned, or implicit wages of management, there remains the possibility of a residual category that cannot be imputed to any factor owner; it appears to be related to the role of the entrepreneur in a way that does not permit it to be treated as his wage, or as market return on his investment. In the last analysis, the ethical evaluation of business profits thus revolves around the nature of “pure economic profit”— both in regard to its economic function and its economic causes. As
we shall see, understanding the economic nature of pure entrepreneurial profit may well open up fresh insights concerning the ethical acceptability of business profits as broadly understood in everyday discourse.
