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Entrepreneurs, Profits, and Deserving Market Shares*

Published online by Cambridge University Press:  13 January 2009

John Christman
John Christman
Affiliation:
Philosophy, Virginia Polytechnic Institute and University of California at San Diego
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Extract

The question I wish to take up in this paper is whether competitive markets, as mechanisms that initiate the distribution of scarce goods, allocate those goods in accordance with what participants in those markets deserve. I want to argue that in general people do not in fact deserve what they get from market interactions, when “what they get” is determined by the competitive forces coming to bear on the market (the laws of supply and demand). This more general claim is meant to apply to all participants in the market (workers and their wages as well as capitalists and their profits). However, my strategy here is to focus on the particular case of the role of entrepreneurs, as I will define them, and whether they deserve the profits they reap in a competitive capitalist market. In particular, I will argue that the claim that entrepreneurs deserve their profits, when spelled out precisely, is indeed not plausible. Generalizing from this claim, I want to suggest how moral desert is inappropriate as a justification of market shares whenever competition determines the magnitude of those shares.

I should stress, though, the particularity of my central claim: it is that “(strictly speaking) entrepreneurs do not (strictly speaking) deserve their (strictly speaking) profits.” This is not to say that, for other reasons (for example, reasons of entitlement or utility), people should not receive the rewards doled out by a market. My claim is only that desert has nothing directly to do with it.

I am deviating significantly here from the usual strategy for denying the relevance of desert claims to principles of distributive justice.

Type
Research Article
Information
Social Philosophy and Policy , Volume 6 , Issue 1 , Autumn 1988 , pp. 1 - 16
Copyright
Copyright © Social Philosophy and Policy Foundation 1998

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References

1 My arguments here apply to all profits, positive or negative. So my full thesis should read: “entrepreneurs deserve neither their profits nor their losses”; more generally, the market simply does not distribute resources (including profits) according to what people deserve.

2 Cf. Rawls, John, A Theory of Justice (Cambridge: Harvard University Press, 1971), pp. 15, 310–15Google Scholar; and Feinberg, Joel, “Justice And Personal Desert” in Doing and Deserving (Princeton: Princeton University Press, 1970), pp. 55–94.Google Scholar For a sympathetic account of “desert defenses” of markets, cf. Hospers, John, Human Conduct: An Introduction to the Problems of Ethics (New York: Harcourt Brace, 1961), pp. 433–46.Google Scholar

3 Buchanan, Allen, in Ethics, Efficiency and the Market (Totowa: Rowman and Allenheld, 1985), pp. 51–53Google Scholar, makes this point.

4 Rawls, A Theory, and Feinberg, “Justice,” pp. 88–94, follow this strategy.

5 This centers around the claim that preferences revealed by market behavior are true reflections of an agent's welfare. This view has been widely criticized; cf., for example, Sen, Amartya, “Rational Fools: A Critique of the Behavioral Foundations of Economic Theory,” Philosophy and Public Affairs, vol. 6 (1977), pp. 317–44Google Scholar. Also see below, section IV.

6 Cf. Samuelson, Paul, Economics (New York: McGraw Hill, 1967)Google Scholar, ch. 31; Knight, Frank, Risk, Uncertainty and Profit (New York: Kelly and Millman, 1957)Google Scholar, ch. 9; and Varian, Hal, Microeconomic Analysis (New York: Norton Press, 1984), p. 6.Google Scholar For a revision of the “standard account,” cf. Kirzner, Israel, Competition and Entrepreneurship (Chicago: Chicago University Press, 1973), ch. 2.Google Scholar

7 I simplify here by only talking of starting a firm. An entrepreneur can redirect production in an already existing firm in a variety of ways. The arguments I make should apply in those cases as well, though.

8 Cf. Samuelson, , Economics, pp. 592ff.Google ScholarCf. also Knight, Risk, ch. 2.

9 This includes interest on capital that the entrepreneur “borrows” from herself.

10 Cf. Knight, Risk, p. 280, where he speaks of the “residual income” of entrepreneurs.

11 If she contributes to the management of the firm, her salary for those services will be computed in the wage bill, but this will not be part of her contribution qua entrepreneur. Recall that I am using the term “entrepreneur” in its strict sense.

12 Feinberg, , “Justice,” p. 61.Google Scholar

13 From this point on I drop consideration of propriety, since my argument rests on the proportionality condition alone.

14 This is distinct from saying that a person is (simply) undeserving. She may, for example, deserve praise, but not the particular praise offered, when it violates this condition.

15 Arnold, N. Scott, “Why Profits Are Deserved,” Ethics, vol. 97, no. 2 (January 1987), pp. 387–402.CrossRefGoogle ScholarCf. also Edward Nell's criticism of Arnold in the same issue (pp. 403–410). Professor Nell makes some similar points to the ones made here, though his discussion is more technical and does not deal with the concept of desert more generally. He spells out how conditions having nothing to do with entrepreneurial activity can determine the rate of profit and thus dislodge any claim of desert. While some of my arguments here rest on a similar kind of claim, the conclusions I want to draw extend beyond his criticisms. Cf. also Arnold's reply to Nell (pp. 411–13); nothing of what he says there addresses the criticisms of his view I adduce below.

16 Arnold, , “Why Profits Are Deserved,” p. 397.Google Scholar

17 ibid.

18 Feinberg, , “Justice,” pp. 81ffGoogle Scholar, also makes this point.

19 Arnold, , “Profits,” p. 393.Google Scholar

20 Cf. Rawls, “Two Concepts of Rules,” Philosophical Review, vol. 64 (1955), pp. 3–32.CrossRefGoogle ScholarCf. also Kleinig, John, “The Concept of Desert,” American Philosophical Quarterly, vol. 8, no. 1 January, 1971), p. 75.Google Scholar

21 Rawls, , A Theory of Justice, p. 310.Google Scholar

22 Cf., e.g., Nozick, Robert, Anarchy, State and Utopia (New York: Basic Books, 1974), pp. 213–215.Google Scholar

23 Cf. Zaitchick, Alan, “On Deserving to Deserve,” Philosophy and Public Affairs, vol. 6, no. 4 (Fall 1977).Google Scholar

24 Arnold, , “Profits,” p. 395Google Scholar, makes points similar to these.

25 Knight, , Risks, p. xx.Google Scholar

26 Rawls, , A Theory of Justice, p. 311.Google Scholar

27 I am grateful to Thomas Christiano for help in clarifying these points.

28 Cf. Buchanan, , Ethics, p. 52Google Scholar, for a point similar to this.

29 For elaboration on this point, see Nell, pp. 408ff.