Business and happiness

A friend once gave me a T-shirt with “Happiness Is Positive Cash Flow” printed in the front. While I agree that positive cash flow is one of the necessary conditions of happiness in a civilized society, it is not in itself sufficient.

What is happiness? It is a cognitive state—and the emotional response—that results from achieving your values. Happiness, or happy life, is properly the purpose of an individual human being. We live our lives pursuing values—food, shelter, career, family, friends, freedom, etc. As long as those values are objective, i.e., consistent with the requirements of human survival and flourishing, we experience happiness when we achieve them. Money, or positive cash flow, is the means to buy many of the material values we need for a happy, flourishing life: food, housing, clothes, medications, books, hockey or theatre tickets, fitness club memberships—but money is merely the means, not the end in itself.

What about business? Can a business be “happy”? Not really, since businesses are not individuals but voluntary, collaborative, contractual endeavors among individuals to achieve mutual goals. But there is a parallel between an individual’s pursuit of happiness and a business’ pursuit of profit. His own happiness is properly the purpose of each individual; profit maximization (by producing goods or services) is the proper purpose of business.

But like individuals who pursue happiness need an objective standard—the requirements of human survival and flourishing—business firms (their managers) also must have an objective standard to assess whether their profit maximization efforts will serve their purpose. That standard for business is long-term profitability. If the actions a business undertakes to pursue profits can be sustained over the long term, they meet the standard. Long-term profitability as a standard rules out immoral attempts to maximize profits as unsustainable—such as defrauding customers or investors.

A business can be “happy” when it pursues profit maximization in a way that can be sustained over the long term: by continually creating value for its customers and therefore for itself (its shareholders). This what enables the business to survive and flourish.

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