Profit has been a suspicious word for Christians for many centuries. Perhaps it seemed that in order to gain a profit from a transaction, the other person had to lose. Maybe it seemed too worldly to want to gain the world’s goods by seeking profit. But churchmen have fostered guilt among entrepreneurs, and entrepreneurs have often bought into the theologians’ flawed arguments against profit.
The hostility toward profit has not disappeared, even after market economies demonstrated their ability to generate vast improvements in material well-being. Oil companies today are condemned for making high profits while we pay $3.00 a gallon for gasoline.
Must a Christian ministry be “nonprofit”? Most people, with their biases against profit, would believe that the ministry had failed morally if it had anything to do with the notion that there was something good about revenues being greater than expenditures.
Measuring profit is actually quite difficult. This is because profit can come in several forms (Proverbs 10:2 says, “Treasures of wickedness profit nothing”; 1 Timothy 4:8 says that “bodily exercise profiteth little: but godliness is profitable unto all things”; 2 Timothy 3:16 says that Scripture is “profitable”; John 6:63 says that the flesh “profiteth nothing”). We have to think more broadly than the perspective of the accountant and look at revenues and costs that come in a form other than dollars.
This means that entities that produce zero profit on paper may actually produce profits or losses. Sometimes the costs are more easily measurable than the benefits. Education is one of those cases. Homeschools are an example: if the education provided by the parents is equivalent to that provided by a Christian school, but the mother is foregoing a $30,000 a year job to do the home education, plus paying $2,000 a year for books and materials, the education costs $32,000 a year. The parents may decide this is worthwhile, even if tuition at a good private school is far less than $32,000. I would be slow to criticize their decision, as the parents may have very good reasons for making this choice. However, we should not pretend that homeschooling is necessarily a savings over a Christian school.
Mutually Beneficial Exchange
Both buyer and seller profit from an exchange. This was not commonly recognized by the church. For example, St. Jerome (c. 340–420) believed that trade was zero-sum. That is, if the seller gains a dollar of profit in the exchange, it must be because the buyer lost a dollar. “All riches come from iniquity,” he said, “and unless one has lost, another cannot gain. Hence that common opinion seems to me to be very true, ‘the rich man is unjust, or the heir of an unjust one.’” Evidently St. Jerome was double-minded because he was inclined to excuse the wealthy if they were wise as well. “[W]ealth is not an obstacle to the rich man who uses it well,” he writes.1
Martin Luther, also contradictory in his economic statements, defines theft so broadly that it could include all trade. Stealing, he writes, “means the unlawful approbation of another’s goods, or, to give it briefly, to derive any sort of advantage from thy neighbor’s disadvantage. Now this is a very common sort of vice.”2
But we all “derive advantage” from another’s disadvantage. A pharmaceutical company profits from relieving the illness that would result without their drugs. A construction business profits from relieving the hardship that would exist without shelter. A Christian school profits from relieving the ignorance of its students. No one likes to admit that they “make a profit from someone else’s suffering,” and it is true that when there is hardship or suffering, there is an opportunity to exercise charity. However, to disallow profit from alleviating suffering would be to eliminate the most significant motivating force that prompts relief of those needs. Most hunger is relieved not by people donating charitably to a community pantry, diaconal fund, or international organization, but by profit-seeking entrepreneurs in the normal course of business.
As objectionable as the profit motive is to many people, it is the profit motive that we most rely on to meet most human needs. As we will see, it is highly unlikely that two parties will conduct an exchange without expecting profit in some form, even if one party calls itself “nonprofit.”
Luther struggled with the idea of the just price, like many Christians before and after his time. He tended to say that a just price is not the market price but rather the cost of production plus profit for labor and the risk of the seller. Luther’s statement on the just price and usury was his essay “Trade and Usury,” written in 1524.3 As Gary North writes,
Its perspective is medieval. Like the scholastic conservative commentators before him, especially those of the twelfth and thirteenth centuries, he opposed free pricing. Merchants may not follow the rule of buying low and selling high. “On such a basis trade can be nothing more than robbing and stealing the property of others … The rule ought to be, not ‘I may sell my wares as dear as I can or will,’ but, ‘I may sell my wares as I ought, or is right and fair.’” The problem for Luther’s analysis, as it had been with the earlier scholastics and canonists, concerned the ethical limits of fairness. How dear may the merchant sell?4
Luther writes, “Now it is fair and right that a merchant take as much profit on his wares as will reimburse him for their cost and compensate him for his trouble, his labor, and his risk.”5
The fact that both parties to the exchange can expect to profit might help us deal with some of the objections to profit. We might see that Martin Luther was not being evenhanded with respect to buyer and seller.
As buyers of goods and services, we usually see the seller—the person receiving the money—as the only one who might receive profit. But the buyer receives profit too, sometimes far more than the seller. It is not easily measurable, but it is profit nonetheless.
Suppose I am driving from Greenville, South Carolina, where I live, to Charlotte, North Carolina, to fly out of the airport there instead of the one three miles from my house. By doing so, let us say that I can save $200.00 on an airplane ticket by driving the extra two hours or so (round trip). Let us suppose that my time is worth $40.00 an hour (so that the trip would cost me $80.00 of my time), and the wear and tear on my car would cost me another $40.00. So after these costs of $120.00, I expect to save $80.00 by making the trip. I have not yet added the cost of fuel. Suppose it will take me eight gallons of gasoline to make the round trip. What is the most I could pay for fuel while still breaking even? Of course, we can see that at anything less than $10.00 a gallon, it makes sense for me to buy the fuel and make the trip. What I actually have to pay is only $2.50 a gallon, so it can be seen that I receive $7.50 of benefit (per gallon) from buying the fuel over and above what I actually paid. This excess of benefit over costs is my “profit” from buying the gasoline. If the seller of the fuel paid $2.00 per gallon for it, and sold it for $2.50 per gallon, his profit is $0.50 per gallon. For the entire eight gallon purchase of fuel, I profited by $60.00, and the gasoline seller profited by $4.00.
Even if the gasoline seller raised the price of gasoline to $9.90 per gallon, I would still benefit from buying it. I would certainly prefer that it be $2.50, or even $1.00, but I am still better off buying it at $9.90 than not buying it at all.
Overconcern about the size of the profit going to your trading partner is likely to make matters worse. In other words, it is better practically and morally not to be envious. McDonald’s probably makes only a few pennies on each Big Mac combo they sell. A hungry customer might be willing to pay $2.00 or $3.00 more than what McDonald’s actually charges for the combo. But rather than fret about the “lost” $2.00 or $3.00 of value going to the customer, McDonald’s merely sells billions of combos and makes a fortune off the pennies from each one.
Oil companies, pharmaceutical companies, and many other firms have been criticized for gaining large profits. For Christians, who base ethics on the Bible, it would be difficult to find grounds for ruling out large profits by businesses but not large profits by customers. And I have yet to see a coherent case for determining that profit over a particular level would be unethical. It would seem that in the absence of a Biblical statement on the issue, we would be adding to the Word of God to argue that any level of profit is unethical.
Profit and Christian Ministries
Maybe the common animosity toward profit can help explain why churches, Christian schools, and other ministries have such perpetual financial difficulties.
About three years ago, the Christian school my daughter attended closed down. The principal and one of the members of the board of directors, who were married, had been running the school without much oversight from the other board members. Without the knowledge of the rest of the board, they had been failing to pay the employers’ share of taxes for their employees. Faced with trouble from the IRS, they decided to raise tuition for the next school year by about 25 percent, thinking this would bring in more money. Many parents (more than a fourth) decided they could not afford the new tuition and turned to other Christian schools, homeschooling, or government schools.
With the financial prospects worsening, the fact that the IRS had not been paid became public knowledge, and the parents hastily met to decide if the school could be saved. A few parents took up the reins and formed a new school, determined to be more financially accountable. The former principal and her husband left a wake of unpaid faculty, most of whom signed on with the new school. Parents who had paid hundreds of dollars of re-enrollment fees to the failing school, in trust that “things would work out,” never saw their money again. I am sorry to say that I was one of those parents.
Rev. Ellsworth McIntyre, a witness to similar financial failures, has argued that Christian schooling is perfectly compatible with a for-profit status.6 In some cases, Rev. McIntyre turned a church-run school around financially, only to find the church leaders resentful that he expected to be paid as agreed upon. The world of business, profit, entrepreneurship, and honoring contracts was, sadly, quite foreign to some pastors.
Why should Christian schools be nonprofit, or, for that matter, be tied to nonprofit churches? McIntyre contended that Christian educators should feel free to be independent and entrepreneurial in their approach. Given the chronic problems churches seem to have with financial management, independence is probably quite sensible in many cases. Theological faithfulness can be preserved by a board of trustees, without requiring financial management by pastors. There is nothing sanctified about the nonprofit status, and as we will see, there are quite a few problems with it.
“Nonprofit” is a legal definition but does not really do away with profit. It merely restricts the destination of those profits (i.e., they must be plowed back into the company rather than distributed to owners).
One textbook I use in my economics classes, written by a Christian economist named Paul Heyne, has some rather non-complimentary things to say about nonprofit entities. The handicap that nonprofit institutions face, Heyne says, is the lack of a “residual claimant”—a person who takes whatever is left over after all contracts have been honored. That leftover may be positive (a profit) or negative (a loss), but the key point is that there is a person, or group of persons, who stands to personally gain or lose depending on the decisions he makes. Heyne writes,
This is why we expect long lines at the post office but not at the grocery store. It’s not that no one at the post office cares. Postal employees are probably just as caring or noncaring on average as the checkout people in grocery stores. The difference arises from the fact that policies are set for the grocery store by a residual claimant, someone with an incentive to estimate the costs … of long lines and the costs … of a reserve supply of [checkout people] … There is no residual claimant in the post office branch or in the postal service as a whole.7
Nonprofit entities employ business practices that are sometimes consistent with what for-profit entities use, though turning for-profit might increase the efficiency of those practices. One such practice is what economists call “price discrimination,” which occurs when customers are charged different prices for the same product. This can increase profits. Airlines charge different prices for the same coach seats. Schools practice this all the time when they grant discounts for low-income families. The practice is equivalent to charging higher prices to people with higher incomes. There’s nothing immoral about price discrimination—in fact it has the advantage of making schooling available to more people.
Is anyone in nonprofit schooling sufficiently motivated to make good decisions about price discrimination practices, or anything else? People naturally pay more attention to what they own and expect income from than what they donate to. This may translate into better accountability for for-profit entities.
Although nonprofit status may encourage donations, some private schools, both Christian and non-Christian are consigning themselves to a marginal financial state and poor information on the appropriateness of their decisions by rejecting profit-seeking out of hand. Are Christian schools clinging to nonprofit status in the hopes of raising $10,000 a year in donations, while squandering $15,000 a year because there is no residual claimant? It is difficult for a school board to contemplate trading a known stream of donations for an uncertain gain in operating efficiency, but this may be what is needed to escape the problems of poor management incentives.
Schools, in my view, may be run under the auspices of a church, or independently of a church, organized as a for-profit or nonprofit entity. I am not arguing that nonprofit entities are illegitimate, although I do believe there are certain disadvantages.
Churches and Profits
We have seen that profit is inevitable in transactions—that anytime a party to a transaction receives benefits that exceed its costs, that party has profited. But a point of clarification is in order when it comes to churches. Arguing that a church may legitimately earn profit (create benefits in excess of costs) does not mean that the church has a license to engage in any profit-making activity.
Obviously, for churches and anyone else, immoral activity, profitable or not, is out of bounds. However, churches have a certain scope of action, outside of which they begin to lose their relative advantage. The ministries of preaching, teaching, healing, and “mercy” are all historically Levitical occupations that might well serve as guidelines for the activities of the modern church. Should a church become involved in real estate investment, restaurants, auto service, home construction, or web hosting? These are somewhat distant from the role of the ministerial Levitical role, although we might see deacons doing auto service or building a house for needy members or sometimes for those outside the church. We may also see a church sell its property and realize a large gain on the appreciated real estate. But there should be boundaries on what the church may do.
According to Christianity Today magazine, a suburban Kansas City church called Church of the Resurrection created a for-profit company legally separate from the church, registered with the SEC, and sold what amounts to shares of stock, in order to raise funds to buy forty-seven acres of valuable nearby property. About a third of the property would be initially used by the United Methodist church, leasing the remaining property to businesses.8
To the extent that this project was undertaken to provide property for the church’s expansion, there is no problem. To the extent this was undertaken to substitute for tithing, this could represent a troubling departure of the church from its core mission. Ron Sider, president of Evangelicals for Social Action, has other concerns—that the church is engaged in profit-seeking. “We desperately need new models of for-profit businesses that reject the idea of achieving the highest profit margin possible,” Sider says.9 To be logically consistent in his anti-profit position, Sider would have to oppose the hard-to-measure—but still real—profit that goes to the buyer.
Profit and Knowledge
Sider also neglects the very important practical purpose of profits—to alleviate the problem of man’s ignorance. In a world with a wide variety of human needs, limited resources with which to meet them, and limited knowledge about which needs are most severe, we should actually be thankful for the existence of profit. Profits serve as an important signal, with higher profits saying, in effect, “More resources are needed over here,” and lower profits or losses saying, “Filling this need is less urgent right now.” Because humans are not omniscient, these signals are vital to good stewardship. Profit is a here-and-now reward for doing something that is beneficial to other people. Socialists, however, view profit as unnecessary, even equivalent to fraud or theft.
Central planners of all types, including socialist-leaning Christians like Sider, want to use some other criteria to decide among competing human needs. But other sources of information are highly unreliable.
If you had a million dollars at your disposal, with the requirement that you devote it to relieving the most urgent human need, how would you decide? Of course the initial response for many Christians will be to direct the funds toward the ministry of the gospel. That might be a good choice. Yet even the most zealous evangelist would have to concede that other uses of those resources are also desirable. Christ himself spent money on food, clothing, and other things. We do not want to fall into the gnostic error here by treating the material world as nonessential or defiled beyond hope. Food, clothing, shelter, medical care, education, and other things are well worth our consideration.
So then, how should this million dollar sum be allocated among these needs? You could ask people to present requests for funding of these various needs and choose the one that seems most important to you. But the repetitiveness, volume, or tone of requests for funding is a poor substitute for the test applied by the market. The market test is, for which of these needs are people willing to sacrifice the most “other goods” to satisfy the need? That essential clue is provided by profit.
Even charitable efforts are directed by profit, to some extent. Charitable assistance being what it is, it is not sold and has no dollar profit associated with it directly. However, the price system and profits inform the donor about which goods and services are in the shortest supply, and thus which goods and services would do the most good if donated. Sider’s objections to profit-seeking probably originate from a desire to do good, but his suggestions, if followed, would lead to social chaos.
Socialism objects to the divinely imposed limits on humanity. Man has inadequate knowledge of how to prioritize various needs, but socialism says that if properly educated and equipped with enough technology, a group of central planners can make an economy run without relying on a price system. The Austrian economists, most notably the late Ludwig von Mises, have been pointing out the problems with this idea for over a century. As Christians, we might add that the centralization of power in the hands of a group of government planners is a violation of the Biblical limits on government.
After the obvious failure of the Soviet system, the failure of the Soviet satellite states, and the movement of China toward market systems, communism is out of fashion, and in the United States at least, one would not admit to being a socialist. The socialists have not disappeared, however. They survive, and to some extent prosper, in several vocations.
Socialism today is common among academics, particularly in the humanities. Academics, often entrenched in tenure, are under less pressure to make their ideas conform to the realities of the world. It is especially ironic that we find socialists in the language arts, for after Babel at least, the development of language has occurred without centralized control, except for computer languages. Perhaps another contributing factor has been the heavy government funding of education. One tends to support the entity that pays one’s bills.
Socialists have also found a home in environmental movements. In these groups one can complain about the abuses of “unfettered capitalism” and spend a career lobbying governments to regulate. I certainly will not deny that there are pollution problems, but socialism tends to make these problems much worse. One needs only look at the severe pollution generated under Communism in Eastern Europe and the Soviet Union.
Journalists also seem to have a propensity toward socialism. I struggle with the reasons for this and can suggest that many of them come from university humanities programs, so they are soaked through with socialist ideas as they enter their work in the media. In addition, journalists may be especially prone to the conceit that they can comprehend how society works—and that they are therefore qualified to plan the lives of others.
Politicians, of course, are often socialists, though they do not usually adopt that moniker in the United States. Socialism provides a justification for expanded state power, and it is difficult for a governing official to resist the idea that he should have more power. Political life is perhaps attractive to those who see government as a solution to the world’s problems.
Finally, socialism is also common among pastors and other church leaders, particularly in mainstream denominations and Roman Catholicism. Thankfully, there are some exceptions, but I have noted that even among the relatively conservative Presbyterian Church in America, of which I am a member, socialism is tolerated or even encouraged. I can attribute this to an inadequate or completely nonexistent formal training in economic ideas in seminaries, as well as the usual entrenched socialism among seminary academics. Another contributor to pastoral socialism may be the nature of their work—which is dependent upon donations instead of a conscious profit-seeking for their living.
We note that there is much more socialism among theological liberals. This may be because theological liberalism is anthropocentric—it makes religion into something human-centered. If God is a creation of man, as many theological liberals state or imply, man becomes the origin of law, and no Biblical boundaries on government apply. In Politics of Guilt and Pity, R. J. Rushdoony writes,
[Theological liberalism] accepts either the autonomous reason of man or the autonomous state as its basic political center and principle, and it calls a state “Christian” insofar as it ministers to human needs and “human rights,” not in terms of any theocentric standard. In terms of theological liberalism, to be “Christian” is to be humanitarian, and, in terms of this, the Merriam-Webster Second International Dictionary has defined “humanitarianism” as “The doctrine that man’s obligations are limited to, and dependent alone on, men and human relations” … This is the framework in terms of which theological liberalism has championed statist action as “Christian” morality.10
This theological statism among pastors, seminary professors, and other church leaders is truly tragic. In a sense, humanitarian liberalism is a kind of slavery—the unceasing labor to establish one’s righteousness by works instead of trusting in the righteousness of Christ. As the great Presbyterian theologian J. Gresham Machen writes,
The grace of God is rejected by modern liberalism. And the result is slavery—the slavery of the law, the wretched bondage by which man undertakes the impossible task of establishing his own righteousness as a ground of acceptance with God. It may seem strange at first sight that “liberalism,” of which the very name means freedom, should in reality be wretched slavery. But the phenomenon is not really so strange. Emancipation from the blessed will of God always involves bondage to some worse taskmaster.11
Thus theologically liberal churches remain socialist in their social statements. The battle against socialism is theological at its core. This area of a church’s witness has important consequences for the freedom of all society. That is why it is so important that pastors and other leaders in the church understand what the Bible has to say about economic issues and that economists understand what the Bible has to say about their field of study. Maybe a small part of the advancement of Biblical economics will be the understanding of the legitimacy of profit, which I have briefly defended in this paper.
1. Murray N. Rothbard, Economic Thought before Adam Smith, (Edward Elgar, 1997), 33.
2. Martin Luther, “Greater Catechism” (1529), Luther’s Primary Works (1896), 72, in Gary North, “The Economics of Luther and Calvin” Journal of Christian Reconstruction, 79.
3. Luther’s Works, (1962), 45, 248.
4. Gary North, “The Economics of Luther and Calvin” Journal of Christian Reconstruction, 79.
5. Luther’s Works, 249.
6. Ellsworth McIntyre, How to Become a Millionaire in Christian Education (Naples, FL: Nicene Press, 1997).
7. Paul Heyne, The Economic Way of Thinking, 11th ed., 172.
8. Corrie Cutrer, “The Business of Resurrection” Christianity Today, December 4, 2000. http://www.christianitytoday.com/ct/2000/014/12.78.html.
10. Rousas J. Rushdoony, Politics of Guilt and Pity (Vallecito, CA: Ross House Books, 1995 ), 316.
11. J. Gresham Machen, Christianity and Liberalism (New York: McMillan, 1923), 144.
- Timothy D. Terrell
Timothy Terrell is associate professor of economics at Wofford College in Spartanburg, South Carolina. He is assistant editor of the Quarterly Journal of Austrian Economics and is an Associated Scholar with the Mises Institute.