TIME?s self-proclaimed ?Curious Capitalist,? Justin Fox, asks in his latest column whether Goldman Sachs and JPMorgan Chase are earning ?Too Much Profit??
In exploring the answer to that question, Fox does not mention at all the role of profit in a capitalist system. To quote the Concise Encyclopedia of Economics:
When profits are above the normal level, they attract additional investment, either by new firms or by existing firms. New investment enters until profits are competed down to the same level the investment could earn elsewhere. In this way, high profits attract firms to invest in areas where consumers are signaling that they want the investment to occur.
So high profits for Goldman and JPMorgan are not ? in and of themselves ? a problem. What Fox chose not to discuss are the government rules, regulations, and roadblocks that prevent new or existing firms from competing with those two giants. Without government interference, competition inevitably would drive those profits down.
