The Purpose of Profit

Abstract

Out of all the events and phenomena surrounding the financial crisis of 2007/2008, one stood out: financialization. What is financialization, why does it occur, and is it problematic? It can be described as the financial sector increasing in size and importance relative to the real economy (including, for example, in terms of business practice and policy making) because of, amongst other reasons, redirected investments. When real economic growth slowed down, attention shifted to financial growth, often expressed in profit. According to several studies, this has led to rising inequality and economic instability. Its occurrence appears to be related to an emphasis on (Neoclassical) profit maximization. In recent times, this is expressed as shareholder value maximization, which became the goal of business activity. The emphasis is arguably unjustified, because theoretical assumptions on which the goal depends, including the presence of the Neoclassical perfectly competitive market, no longer hold in current real-world conditions (they appear more oligopolistic). Perhaps therefore, the prescription of profit maximization is no longer valid. Is the solution to try and return to perfect competition? Considering the aforementioned consequences, maybe it is time to visit other ideas too. The purpose of this thesis is to find elements of an economic model and especially a business model, that would provide a different economic goal. Ideally, a goal that, through our economic activities, would enable individuals to develop themselves and to participate in a stable economic system. Based on theoretical and empirical research, the thesis presents several building blocks for an alternative business model, relating to three realms of human existence: cultural-scientific, practical-economic and legal-political.1 From Aristotelian literature2 follows that eudaimonia would be the human goal (rather than Benthamite-utilitarian utility maximization).The cultural-scientific sphere would encompass what is referred to, by for example Wilken (1982) as, the Geistesleben. There would be freedom of thought, which contributes to development of, what Aristotle calls, virtues, which are essential towards eudaimonia. Financial literacy (Houghton Budd, 2017) might be instrumental. It would mean everyone would understand accounting and (also practice) bookkeeping in particular. An analogy with a mirror demonstrates that accounting shows what is happening. It is neutral yet it allows people to see what is going on, and thereby hold each other accountable. The practical-economic sphere would be devoted to fulfilling the material needs of people. It is important to note that this would not include limitless wants (which means the consumer is not insatiable). The underlying idea for economic activity would be the implementation of the ‘just price’3. A just price ensures that the costs of production are covered, but also, and this is an elaboration, the intellectual or spiritual input. The just price would be paid for the product of labour, and the input of the Geist of the producer. Labour would not be traded in a market because then remuneration might fall below that what is needed. Undeniably, the fact that there would be no labour market has huge implications.