Profits: Rewards and Incentives in an Economic System to Allocate Capital

Profit-seeking, not just religious freedom, was a motivation for the English colonists in America. In fact, the search for profit prompted many a voyage (Portuguese, British, and Dutch) of exploration. The pursuit of profits provides both the incentive and reward for economic activity. Profits provide the funds for capital investment and employment. Profits of the enterprise are the income to owners and shareholders. However, profits do not run in sync with economic growth and so a dynamic is set up where profit growth is sometimes strongest as the economy recovers from recession and slows as the economic recovery matures. Yet, there is often a disconnect between the ability of companies to deliver profits and the expectations of investors to reap these same profits. One interesting twist in recent years has been the willingness of investors to invest in capital gains rather than income.