Who Profits: A Book Manuscript
Definitions of profit in the history of economic thought have been highly diverse and fluctuating. “Of all the traditional branches of economics,” warned twentieth-century economist John Hicks, “the theory of profits has had the greatest difficulty in attaining the ‘safe path of a science.’” For this reason, profit has proved particularly suitable for carrying, and concealing, ideological stakes. Profits have been tied to virtue and frugality, the surplus value of labor, or the entrepreneurial spirit with equal amounts of scientific zeal. Who Profits? expounds the different models of profit—business activism, waiting, market-making, labor-exploitation, and innovation—ranging from the classical tradition of Adam Smith to the neoclassical revision of economics and its twentieth-century critics. Its main argument is that profit has, throughout its modern history, served as the bridge between the technical apparatus of capitalism and its normative and ideological underpinnings. Through its long engagement with the unstable, permanently suspect idea of profit, economics can and should be read as an intellectual tradition concerned with social and distributive justice. The idea of profit as the gap between costs and returns is but the beginning. The forces—material and normative, human and structural—that shape the gap, distribute it, or threaten it, are the main components of the profit question.
Rather than offer a teleological story of the evolution of profit from Smith to the present, the book takes this plurality of definitions as the essence of profit. Nonetheless, it is written with some urgency concerning one widespread and dangerous contemporary sensibility. This is the now naturalized view that profit is a highly individual, potentially limitless reward for personal “genius” and the prerogative of property ownership. A view of profit as unlimited by definition is particularly troublesome, since it implies that any cap on profit is an external, artificial imposition, setting up a false opposition between states and markets. It is this view which shapes our current systems of taxation, measures of income inequality, and corporate culture. But the history of profit that the book unfolds tells another story. It is premised almost entirely on the “natural,” or inherent limits of profit and their social effects.
To explain how we got from Adam Smith’s fixed, regular, and limited rate of profit, acting as a constraint on business decisions, to Frank Knight’s or Milton Friedman’s unlimited profit, the book divides the modern history of profit into three periods. The first is the “golden age,” coinciding with classical surplus theory and the labor theory of value (mid-eighteenth to the mid-nineteenth century), in which the concept is revived and rehabilitated, removed from its former association with mercantilism and with the interests of a particularly unwholesome social class of merchants and speculators. Second is the “reductive age”, following a growing sense, in the second half of the nineteenth century, that profit poses more problems than it solves, both methodologically and politically. This period is marked by the neoclassical and the Marxist definitions of profit, the first of which largely replaces it with utility and the second of which reduces it to a pure form of exploitation. Finally, the “reactive age” includes the early-twentieth-century critique of this reductive trend, particularly in the context of new theories of the entrepreneur. Profit is rediscovered, as it were, beyond the neoclassical models, in the dynamic and uncertain elements of capitalist economies.
The ever-changing theory of profit is thus the product of dialogue and reaction and is rooted in scientific, technological, and political transformations. Smith’s optimism about the wealth-generating powers of capital and labor were met with Malthusian pessimism about the limits of sustainable population growth. The relentless imperatives of capital accumulation heralded by classical “surplus” economists were answered with the calm balance of equilibrium in neoclassicism. The capitalist’s exploitation of labor was rebutted with the birth of the heroic entrepreneur, a sign of the transformation of industry by the modern corporation. Understanding the changing definitions of profit in their context allows us to elucidate the principles behind them and adapt them to a very different contemporary environment. For over two centuries, profit has consistently been interpreted by economists as a tool in the hands of governments and markets for redistributing not only goods, services, and resources, but promises, responsibilities, and social burdens. Profit’s persistent regeneration is a standing testimony to the deep problems of human collaboration, capitalist or otherwise: our moral uncertainty about future rewards for present effort and sacrifice; the problem of the fair distribution of the fruit of collaboration; and the sheer temporal element of all production, the permanent gap between reaping and sowing.