Rev. Robert Sirico on the Role of Profits in the Economy

Rev. Robert Sirico, author of Defending the Free Market: The Moral Case for a Free Economy, wrote for the Institute for Faith, Work, and Economics yesterday about profits and their role in the economy:

One often hears that businesspeople are only interested in earning profits – what they can make from the deal.

Set aside for a moment this claim and ask yourself, “Should one invest one’s time, energy, talent, and wealth into a business in order to obtain a loss on the balance sheets?” For that you could have stayed home.

Profit is an indicator to you that you are achieving what you set out to do in a sustainable way. The opposite of profit is financial loss, and any business that consistently loses money cannot survive long. Indeed, no business or society can sustainably function where more resources are wasted than created. [ . . . ]

This view of profits goes back to the French Liberal school of economic thought (Jean-Baptise Say, Frederic Bastiat). Rev. Sirico continues, denouncing the zero-sum myth:

[ . . . ]But consider that maybe the pie wasn’t always just sitting there – the exact same size from all eternity. Maybe some of those who are rich didn’t take more than their fair share; maybe they made more than their fair share.

If this is the case, profits aren’t inherently immoral any more than losses are a badge of saintliness. Profits suggest that a business is using its resources wisely; losses, that it is not. This isn’t to say that profits and losses are a business’s be-all and end-all, but they do serve as first-level indicators of whether a business is serving customers in an effective, sustainable manner. [ . . . ]

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