What Is Profit Motivation?
People go into business for a wide range of reasons. Some people want to pursue a passion, such as writing or graphic design. Entrepreneurs often want to control the use of their own time and energy or to bring an idea to fruition that no one else supported. In some cases, a person seeks to carry on a legacy. In most cases, though, people enter into businesses of one kind or another to make money or, put another way, to make a profit.
Two common business terms, profit and revenue, often get used in ways that make them appear interchangeable. Revenue refers to the raw sum of money a business brings in over a given period of time. For example, Internet retailer Amazon brought in $21.27 billion in the fourth quarter of 2012. Profit, on the other hand, refers to how much the business makes after deducting all of its expenses, such a salaries and equipment purchases. In the fourth quarter of 2012, Amazon only made a profit of $97 million.
Profit motive boils down to the desire to exchange goods, services or skills for more than the base cost of producing or exercising those goods and skills. In a very real way, businesses embody the concept of a profit motive, because generating profit stands as the primary function of most businesses. At the level of individual people, profit motive can serve as a motivator to engage in work, but profit motive can lose its motivational power once a person reaches a level of perceived financial security or finds an alternative endeavor she values more.
In “The Wealth of Nations,” one of the core texts informing capitalist theory, Adam Smith offers that self interest, rather than profit per se, drives business. Profit stands in as a proxy for self interest, in large part, due to the use of money as the means of exchange, rather than some mutually agreed-on combination of goods or services rendered. Under a Smithian analysis, more business means a person enjoys better security in terms of her self-interest. Under current conditions, money provides a more objective kind of yardstick. More business means more money, which in turn secures self-interested ends, such as survival and comfort.
Unchecked profit motivation, commonly called greed, takes the blame for much of the wrongdoing in the context of business. Greed no doubt contributes to some lapses in business behaviors. However, business ethics consultant Chris MacDonald, in a 2011 blog post, argues that the evidence does not support the idea that profit motive drives the majority of illegal and unethical business behaviors. Economist Stephen Horowitz argues in a 2008 article in "the Freeman" that far from being a bad thing, profit motive can function as teaching instrument that informs businesses what products to offer and how best to make them.