Universitas, Number 11, April 2005

PROFIT - Its Definition

Don Boland

"Profit", like "Capitalism", is a word that evokes much emotion in our times, and of an extreme kind, either for and against whatever it represents in the modern economy. How is it possible that the same thing can be so lauded and condemned within the same society in which it exists? Either one or other or both sides are mistaken in their judgment about it; or the word is used in an ambiguous way, so that the parties are essentially at cross purposes.

My contention is that, though there is undoubtedly an element of partisanship in both extreme views, resulting in a misplaced praise, on the one hand, and condemnation, on the other hand, of all profit-making, the truth of the matter is that the word is used in a quite ambiguous way. In one sense, it is essentially something good, but in another sense, and one that has perhaps greater "currency" in our day, it names a moral and a social evil of the most grievous kind.

These two distinct notions of profit are related to two opposed views regarding the getting of wealth generally. One view sees wealth getting, and hence profit-making, as ordered to a definite limited end, the other views it as essentially unlimited, there being no possibility of satisfying our wants or desires for possessions.

Aristotle pointed out this difference of attitudes long ago, speaking of the art of making a living: "the amount of property that is needed for a good life is not unlimited, although Solon in one of his poems says that 'no bound to riches has been fixed for man'. But there is a boundary fixed, just as there is in the other arts; for the instruments of any art are never unlimited, either in number or size, and riches may be defined as the number of instruments to be used in a household or in a state." [I Pol. Ch. 9]

That refers to the first, and naturally good, attitude towards wealth-getting, and consequently towards profit-making.

He also clearly delineates the other "art" of wealth-getting that induces the notion that there is no limit to the amount of wealth we may desire to possess. "There is another variety of the art of acquisition which …has in fact suggested the notion that riches and property have no limit. Being nearly connected with the preceding, it is often identified with it. .. The kind already described is given by nature, the other is gained by experience and art." [ibid]

It is to be noted that, although they are opposed as finite and infinite, it is not easy to distinguish between the two. In Aristotle's day it appears that the second was often confused with the first. But in modern times we might even go so far as to say that the first has been almost totally absorbed into the second.

Let us begin however with the etymology of the word "profit", remembering that we wish its essential sense to be confined to its economic context. The original, and naturally good meaning, comes from the Latin verb proficere - to advance, go forward. The adjective "proficient", to be skilled in producing something, is related to this. Hence, the shoemaker will make a profit in his business if he is proficient. The profit is simply the result of his proficiency.

We need to be a little careful here. We are simply referring to his shoe-making prowess, not to his business acumen, to which we will come to below. But we may assume that, barring accidents, he will be able to gain a reasonable living, make a reasonable profit, if he is proficient in the making of shoes. The shoes he sells are the result of his proficiency, his profit, out of which he obtains what he needs to live on, i.e. his living.

Such profit, then, is a sure sign that his "business" is doing what it should. There can be no argument that profit taken in this original sense is nothing but good. We can universalize this statement to extend to all productive occupations and useful services rendered within the economic order. Profit is a natural sign of a business operating properly, and economically, and a loss is a sure sign of the opposite.

Such a profit, too, is naturally limited to the reasonable requirements of the community for shoes etc. Nor do the number and variety of goods or services so produced or provided for the community alter this picture. "and riches may be defined as the number of instruments to be used in a household or in a state".

So much for the original and first meaning of "profit". The notion of profit supposes an exchange system in which people use what they make to obtain what they need or want. It can be verified in the primitive exchange system of barter. The shoemaker's profit is intended to be exchanged for all his living requirements supplied by others. Thus his profit is converted into the satisfaction of all his living needs etc.

The second meaning is a derived and secondary one. But it is not easy to see the distinction, as it is closely connected to the first. We also suffer from the disadvantage today that no distinction is in fact made in modern economic theory and practice. Yet, the distinction is critical to the proper understanding and management of our economic affairs, both from the individual and social point of view.

We will need, then, to proceed very carefully. A preliminary clue is that the unlimited character of this second meaning of "profit" is related to the fact that the desire for money as such knows no limit. The second meaning of profit, then, will most likely involve some connection with the pursuit of money for its own sake.

Profit, in the first sense, is embodied in the goods we make for the market. Profit, in the second sense, is realized in the money we make in the market, without making any goods. But we also refer to profit made in the first sense as the money we have made.

In order to understand the distinction it will obviously be necessary for us to examine the nature of the exchange process and the function of money in it. It will be seen that money indeed is used in two ways, one original and one derived, or one primary and one secondary. We should not be surprised, then, if the two senses of profit, one original and natural, and the other derived and "artificial", are related to this twofold function of money.

The twofold function of money in the exchange process has already been dealt with by the writer in a number of places. This treatment is derived directly from Aristotle's analysis , as elaborated by St. Thomas , of the two modes of exchange, the one natural and the other not. The former has been symbolized by CMC and the latter by MCM, where C stands for commodity or goods and M for money. In the former money functions as a medium; in the latter money takes on the function of the principle and term of the particular exchange, with some commodity or goods functioning now as a medium - to the making of (more) money.

Now the reason why the first kind is called natural is because the principle and term of the exchange is natural, even though the medium is not. That is to say the exchange ends in the satisfaction of some real or natural need for tangible goods. The second kind of exchange is not natural because it lacks such a natural term, being oriented to money the desire for which is not able to be limited except from what lies outside it.

Suffice is to say, however, that in the first case the profit is naturally limited, and accordingly a reasonable desire for same is finite. In the second case, though, there is no reason in the object to stop and therefore the pursuit of profit in this case knows no reasonable limit.

We have then a basis for distinguishing two senses of "profit" in the commercial world. They are near to one another, but diametrically opposite in significance. We do, it is true, describe them both as a matter of making money. But in regard to the first this simply signifies the goods made or originally provided are measured in monetary terms. In regard to the second it signifies an increase in one's money without any goods being provided (or services rendered). The monetary profit derives rather from exploiting a price differential with regard to the same goods bought and then sold. In the first case the gain or profit is positive and social; in the second it is relative only and individual.

One can appreciate that if these two senses of profit are confused there must be great disorder introduced into our thinking on socio-economic matters. Imagine the potential for havoc in socio-economic affairs should the second sense be given precedence. We do not have to imagine this for it is upon us.

Up to this stage we have treated things according to their essential meaning and import. But though the second meaning of "profit" bespeaks no intrinsic or natural limit, nonetheless, as St. Thomas observes, it is possible for the profit-maker to voluntarily accept a limit. If therefore he subordinates his profit-making to the natural needs and reasonable requirements of himself, his family and those in the community who are in need, according to the standards of the society, he avoids the evil that attaches to the pursuit of money for its own sake or without rational limit. Profit in the second sense is therefore not to be automatically condemned. I leave it to the reader's own estimation how far present profit-making of this kind might be being voluntarily directed to and limited by these ends.

Nonetheless it may now be clear why some, identifying all profit with money-making of this second kind, are mistakenly inclined to condemn all profit-making. On the other hand, it is harder to understand why others, schooled by modern economics to think mainly in terms of the second sense of profit, do not at least suspect that there may be something wrong with the pursuit of profit without limit.

FOOTNOTES

1 Cf. Centesimus Annus [34], and the new Compendium of the Social Doctrine of the Church [340], where this positive and good sense of profit is clearly acknowledged. The existence of another not necessarily good sense is not directly adverted to, though the point is strongly made that a desire for profit without limit is to be condemned. Generally, however, there appears to be no reference to the distinctions noted here as made by St. Thomas in regard to wealth, money and commerce. It does not seem to be widely appreciated today, even among Catholics, that St. Thomas has insights here too that we need in order to better understand the problems of the modern economy.

2 See particularly "Capitalism - its definition" (appearing on website of G. K. Chesterton Institute for Faith and Culture Oxford: www.secondspring.co.uk/economy/forum.htm)

3 Aristotle Politics, Book I, c. 9-10

4 Cf. II-II, 77, a. 4; and his commentary on the relevant part of Aristotle's Politics.

Don Boland


Don Boland is a lecturer at the Centre for Thomistic Studies, in Sydney, Australia.

This article posted April 2005. It was published in Universitas, No. 11 (2005).
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