1 The Moral Status of Profit Joseph Heath Department of Philosophy University of Toronto Abstract: There is a common fallacy, among critics of capitalism, that because firms are licensed to pursue profits, the purpose of the economic system as a whole must be to facilitate the realization of such profits. This is manifestly not the case, since design of markets, including the insistence on competition between firms, is intended to bid profits down to zero. The lure of profit is what leads firms to compete with one another, which creates an institutionally enforced collective action problem that drives prices toward the level that allows for a more efficient allocation of labour, resources, goods and services. The achievement of these “market clearing” prices is the actual purpose of the system. This explains why many people find the profit orientation of firms to be morally counterintuitive. Most of everyday morality is aimed at getting people to act more cooperatively, whereas profit-maximization is essentially a free-rider strategy. Keywords: business ethics, profit, competition, adversarial ethics Forthcoming in Oxford Handbook of Ethics and Economics, ed. Mark D. White. Many critics of capitalism consider it self-evident that the system is unethical, because it allows, and indeed, relies upon, the organization of economic activity based on the pursuit of profit. Unfortunately, because these critics regard the proposition as self-evident, they seldom take the time to specify in much detail why they think the pursuit of profit is so problematic. In some cases the animus seems to be based on an elementary confusion, between the self-interest of individuals and the profit orientation of firms. If moral rules constitute impartial constraints on the pursuit of self-interest, and profit-maximization is just another way of describing the pursuit of self-interest, then it follows that morality must stand in some sort of antagonistic relation to the pursuit of profit. This confusion, it should be noted, has not been confined to critics of capitalism. The undergraduate economics textbook that I studied, back in the 1980s, started out with the assumption that individuals are self-interested, and introduced utility functions in order to represent this (Lipsey, Purvis & Steiner 1988). All of a sudden these individual utility functions were “aggregated” into joint utility functions, to represent