Monday, April 20, 2009

Free Markets (12) - Best Method of Exchange

Every transaction in a free market provides a benefit to both parties. The reason is simple. If either the buyer or the seller thinks they will not benefit, the transaction will not proceed. This is quite amazing. A process that benefits every participant and harms no one really builds up the harmony in society. People who complain about free markets do not understand how markets work.

There are only four other ways that Bob could get John’s car.

  1. Love. If Bob were John’s son, he might give him the car for free. Love is very generous, but it does not stretch very far. It is generally limited to close friends and families.
  2. Compassion. John might feel sorry for Bob and decide to give him the car. Compassion reaches further than love, but is less generous.
  3. Theft Bob could steal John’s car. This gives Bob what he wants, but John loses. The Bible forbids theft, so this is not viable option.
  4. Force Bob could persuade someone bigger and tougher than John to force him to hand over the car. This method has been common throughout history and can take various forms. Bob might simply thump John. He might get a gang of friends to intimidate John into signing over the car. Bob could persuade the government to confiscate the car from John and hand it over to him.
All four options have something important in common: they are zero sum. In each case Bob benefits, but John is worse off. In the first two options John freely chooses to be worse off, so that is acceptable. He still has the right of veto. If he decides not to show love or compassion he can keep the car. If he is forced to love, it ceases to be love and becomes force. If John is forced to show compassion, the transaction stops being option 2 and becomes option 4.

This full series is at Markets and Morality.

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