Hunger for profits


For some, it borders on madness to suggest that the primary goal of a company would not be profits

The idea that the primary goal of any business is to turn a profit has a rich history that is tied to the rise of money itself. When the Greeks and Romans built civilisations in the West and the Tang dynasty in China and the Guptas in India created Golden Ages in the East, money mattered far less than it does today. A striking example of this can be found in one of history’s most legendary figures. Alexander the Great (356–323 BC) deserves the title of being one of the richest people in history (adjusted for inflation), if not the richest. He conquered possibly the largest empire ever conquered by one man, between the age of 20, when he became king, and his death at 33.

We know that he captured around 180,000 talents of gold from the conquered Persian palaces alone, which would be worth somewhere around $200 billion today. In addition, he received a tribute of a further 12,000 talents per year (today worth some $1.8 billion). Payments in kind mattered much more in those days, but of these no figures exist. Moreover, he owned all the lands from Greece to India including the Egypt of the pharaohs, housing several of the Seven World Wonders such as the pyramids of Giza. Apart from that he owned real estate in the form of dazzling palaces, and royal art collections of incalculable value, especially in today’s prices.

And yet, as Oxford’s Robin Lane Fox explains in his superb biography, it all mattered little to Alexander. “His attitude to money,” Lane Fox writes, “was no different to that of his father Philip or indeed of any well­to­do gentlemen in the classic world; money in so far as it was used at all, existed to be spent, not saved, so that conspicuous consumption was an enduring feature of the life of ancient city aristocrats, whether Greek, Roman or Byzantine. For the men of antiquity, there was a judicious art in going bankrupt publicly, and Alexander was true to this attitude on the grandest possible scale.”

Perhaps in no one has the discrepancy between the size of his fortune and his lack of interest in it ever been bigger than in Alexander. But at some point in the history between us and him, money became so important that its loss would lead some to even commit suicide, as it did after the 1929 crash of Wall Street. How could the focus on profits become such a central principle in our world today?

Originally, lending money for interest was a sin in the West, hampering trade. One 13th century bishop declared that ‘the amount of interest moneylenders earned corresponded to the amount of wood sent to hell to burn them’. (A sentiment about bankers that one might say resurfaced in modernised form after the 2008 financial crisis.)

An ingenious Belgium theologian, Leonardus Lessius (1554–1623), provided the breakthrough. Lessius saw that the lender could not invest his money for a profit when he would lend it, and hence was entitled to a compensation for this loss of profit (‘lucrum cessans’ in Latin). The idea of opportunity costs was born and it unchained money from the shackles of religion in Europe.

With the founding of the Dutch East India Company, the first in history to issue tradable equity shares, dispersed ownership was introduced. And stock markets became markets for buying and selling these small claims. Ownership and control became separated and investors started buying shares solely in order to earn a return on their investment. This resulted in agency problems—managers not always behaving in the best interests of the owners. And concepts like shareholder value maximisation, buyouts and governance covenants increased the ability of investors to force management to focus on profits as the primary aim of companies.

Today it borders on madness to suggest that the primary goal of a company would not be profits. But ironically, no profit­-focused investor or manager ever became as rich as the financially indifferent Alexander.