This is a commentary on: Munger, Michael C. and Russell, Daniel C. 2018. “Can Profit Seekers be Virtuous.” In The Routledge Companion to Business Ethics, eds. E. Heath, B. Kaldis, and A. Marcoux. New York, NY: Routledge. 113–130.

Written by Santiago Mejia, Assistant Professor of Law and Ethics at Fordham University, New York.

Abstract

Michael Munger and Dan Russell lay out three conditions that are supposed to guarantee that a profit-seeker, even one who seeks extraordinary profits, can be virtuous. While their account provides a valuable starting point, it would be strengthened by recognizing that a profit-seeker can only be virtuous if she 1) uses her profits virtuously, 2) is not merely motivated by her own narrow self-interest, 3) displays virtues such as justice and beneficence in the exchanges that lead to her profits, and 4) displays virtue in other realms of her life.

“If we make money the object of man-training, we shall develop money-makers but not necessarily men…” (W.E.B Du Bois, 1903)

Munger and Russell’s Main Claims

In their article, “Can Profit Seekers Be Virtuous?”,[1] Michael Munger and Daniel Russell argue against what they call a mischievous doctrine: “At best profit seeking is no virtue. At worst, it is a vice” (2018, 113). They defend that profit-seekers, even those who seek extraordinary profits, are virtuous, as long as three conditions are met:

1. The exchanges that lead to their profits are “euvoluntary,” that is, such exchanges are free, mutually agreed under no conditions of duress, do not involve significant negative externalities, and involve transactions where each party receives at least the value they anticipated (116–117).
2. The profits are “entrepreneurial profits,” earned by creating value in a competitive market process and not through rent-seeking strategies (113, 123–127).
3. Their intent is virtuous.

To illustrate both why profit-seeking has often been perceived negatively and why this is a mistaken view, Munger and Russell describe the “itinerant padre,” a gifted trader in a POW camp. Every month, prisoners received identical Red Cross packets with milk, beef, cigarettes, and other goods. The padre started off with a tin of cheese and five cigarettes and, after multiple exchanges, returned to his bed with a complete parcel in addition to his original cheese and cigarettes (117). The opinion towards the padre in the camp was not positive. It was said that he did not improve the traded products but merely “resold’’ them at a higher price, profiting at the expense of others.

Munger and Russell argue that this assessment is mistaken. The padre corrects a mistaken allocation of resources, helping those who don’t smoke get cheese in exchange for their cigarettes. Thus, he did not profit at the expense of others, but earned his profits by finding opportunities that created value for others and reducing transaction costs (118).

Their account does a nice job of identifying the significant social benefits that certain kinds of profit-seeking practices bring to society. However, the conditions they lay out seem insufficient to show that profit-seekers are virtuous, at least according to an account of virtue ethics that many virtue ethicists would favor.

Virtuous Intent: the How and the What

According to many accounts of virtue, one cannot attribute virtue to a person by judging only one dimension of her life. To be “virtuous” requires being more than being a virtuous profit-seeker. It also entails being a virtuous coworker, a virtuous citizen, etc. An abusive parent or a selfish neighbor is not virtuous, even if they make profits fulfilling Munger and Russell’s three conditions.

Munger and Russell may argue that their paper was only concerned with identifying whether it is possible to seek extraordinary profits in a virtuous way and that this entailed restricting their attention only to how profit-seekers make their profits.  This focus, however, seems too narrow to assess whether profit-seeking is virtuous.  Profits (i.e., money) are an instrumental good, and an instrumental good is explained and justified by the end that it brings about. Thus, to properly understand and assess what the profit-seeker is doing, one needs to understand her intent, in particular what she does with her profits. For instance, seeking profits to fund an unjust war is not virtuous even if one acquires these profits meeting Munger and Russell’s three conditions.

Munger and Russell defend that profit-seekers’ intent is virtuous merely if how they intend to acquire their profits is virtuous (122-123). In this regard they compare profit-seeking to walking: [I]t is possible to act with virtuous intent, even when what one intends to do is nothing special. Someone who walks for exercise does something that is neither virtuous nor vicious on its face, but how he intends to do it will make one of the other. (…) Here, how someone intends to do something makes the entire difference as to whether his intent is virtuous or not (122).

This example fails to illustrate, as they suggest, that “how-we-intend-to-do-it is what makes it virtuous or vicious” (123). There may be nothing special in walking to exercise, but exercising is a morally legitimate end that justifies and explains walking. If the person was walking to spy on the neighbors, this would be sufficient to disqualify the action as virtuous, regardless of how she walked.

Munger and Russell are correct that how one pursues an action is critical for doing it virtuously. However, their account of virtue is insufficient because virtuous intent, especially when one is analysing an activity like profit-seeking that pursues an instrumental end, also involves what one intends to do. If the itinerant padre seeks the extra parcels to hoard without limit, we would say that he is afflicted by the vice of greed. If he uses these extra rations to indulge his appetites excessively, we would call him gluttonous. In both of these cases, given that so many of the other prisoners have barely enough to go around, we would say that he is callous and selfish.

Self-Interest, Value Creation, and Virtue

Munger and Russell’s second condition stipulates that virtuous profit-seeking earns profits by creating value in a competitive market process (113, 118–120). They cite the famous passage from Adam Smith to illustrate the social benefits generated by profit-seeking. However, their account disregards that if profit-seekers act, as Smith’s butcher and baker, out of self-interest, if in our exchanges with them we need to appeal not to their humanity but to their self-love, it seems strained to call them virtuous. Of course, these profit-seekers should get moral credit by profiting only from entrepreneurial profits; it takes moral fortitude to forgo the opportunity to profit through rent seeking (125). However, if these profit-seekers’ activities are only driven by self-interest, most accounts of virtue would not consider them virtuous.[2]

At this point, some may be tempted to say that the virtuous profit-seeker is ultimately motivated by creating social value. It is worth noting, however, that if value creation is the guiding motivation of a person, one should call her a “value-creator” not a “profit-seeker.” Furthermore, if this person’s aim is to create value, it becomes an open question whether profit-seeking is always the best means to achieve it. In some cases, profit-seeking may be the best way to do so, but there are others where it may not. A value-creator, for instance, would recognize that the full potential of, say, the World Wide Web, Linux, or Emacs may require relinquishing profits and making these innovations freely available to others. A value-creating padre, recognizing that resources in the POW camp would be much better allocated if prisoners used a bulletin board to exchange their goods, would promote the use of such board even though this would put a stop to his trading bonanza.

The Institution of Entrepreneurship

Munger and Russell write that the institution of entrepreneurship carries moral weight because entrepreneurial profits generate significant benefits to society at large (119–120). They add that, even though entrepreneurial profits are “often out of all proportion to the merits of entrepreneurs” (119), such entrepreneurs nevertheless deserve their profit because they “were acquired within an institution that carries [moral] weight” (120). This seems too fast of a conclusion. Many of our institutions are not designed for virtuous persons but for ordinary and fallible individuals. The fact that a person operates within the parameters set up by a socially valuable institution entails that she is acting legally. But this does not always entail that she is acting morally, much less virtuously.

Munger and Russell’s paper makes a good case for why societies should support institutions that allow self-interested entrepreneurs to seek profits; the social value created justifies it. However, and as I said before, if self-interest is the only driver of the entrepreneur’s activities, most conceptions of virtue would not characterize this person as virtuous, regardless of how much value is created by this person and even if her self-interest was enlightened enough to lead her to refrain from rent seeking or from taking advantage of significant negative externalities.

Just And Beneficent Exchanges

Finally, while Munger and Russell put forth a strong argument for the benefits that certain kinds of profit-seeking bring to society, one would expect the virtuous entrepreneur’s exchanges to be responsive to considerations about justice and beneficence.

Let me start with just exchanges. Munger and Russell grant that entrepreneurial profits are sometimes “out of all proportion to the merits of the entrepreneurs” (120). A virtuous entrepreneur, upon recognizing this, would seek a fairer distribution of the value created, particularly when such value creation depends on the contribution of others.

For instance, coffee production involves value creation by both farmers and roasters. It is often said that roasters capture a significantly higher proportion of the value created. Suppose there is a virtuous entrepreneur who founded an innovative and lucrative roasting company that generates profits “out of all proportion to the entrepreneur’s merits.” If virtue requires her to be sensitive to justice in her exchanges, we would not expect her to acquire as much value as possible from such exchanges. Instead, the virtuous entrepreneur, recognizing that her rewards are disproportional to her merit, and that the farmers’ compensation is not proportional to the value they create (and to the risks and efforts they undertake) would seek a fairer distribution of the overall value created (for instance, by paying farmers more for their product).[3]

Let me conclude by discussing beneficent exchanges: if one believes that beneficence is a virtue (something that Aristotle appears to deny), one would expect the virtuous profit-seeker’s exchanges to also be sensitive to considerations about beneficence. For instance, one would expect a virtuous itinerant padre to identify, through her trading activities, parties that are vulnerable or needy (even if not so vulnerable and needy to be forced to exchange under conditions of duress) and “charge” them lower prices or even trade at “a loss” with them.[4]

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[1]    I will cite their paper by providing the page number only.

[2]    An analogy may help to illuminate this point. The profit-seeker that Munger and Russell portray is like an honor-loving person who volunteers to social causes for the sake of causing a good impression, but who will only volunteer to causes that actually create value. This person (like the profit-seeker) is creating value. However, one would likely characterize her as vain and not as virtuous.

[3]    Of course, if everyone started to exchange in this way, the power of the price system to track the relative scarcity of resources would likely be diminished, impairing a proper allocation of resources. The virtuous value-creator would not, of course, be oblivious to this fact. If her trading practices interfered with prices’ signaling function, she would come up with alternative ways to distribute more equitably the value created. However, because one would expect few individuals to act like this (virtue, after all, is rare), this potential objection will often be moot.

[4] For her valuable research assistance, I’d like to thank Dominique Nikolaidis. For their valuable feedback on earlier versions of this document, I am grateful to Pietro Bonaldi, Ignacio Ferrero, Kevin Jackson, Dhananjay Jagannathan, Daniel Rodriguez Navas, Alejo Sison, and Greg Wolcott.