Mises
Voluntary exchange is the core of all market economies. It is the lifeblood that propels innovation, societal welfare, and progress, creating intricate webs of interconnected transactions that heighten productivity. In pursuit of profits, businesses sell and improve their products to outperform competitors and increasingly capture market shares, spurring the development of novel ideas and solutions. As Michael Matulef puts it, “The constant push for improvement and the desire to meet consumer demands result in a dynamic market landscape, where innovation thrives, and products become increasingly sophisticated and tailored to meet specific needs.” With the adoption of more pro-trade policies and economic systems, millions of people continue to see an increase in their standard of living.
Despite the benefits of trade and the consequent strides our society has made, its morality is often contested on the basis of exploitation. Opponents frequently argue that, in any transaction, one party can only benefit at the expense of the other, popularizing the false narrative that trade is a “zero-sum” game. This is often taken one step further in the analysis of the producer-consumer relationship to claim that successful business people do not benefit others when making and spending their money. However, with deeper inspection, the holes in this view quickly appear in the face of praxeology, the implications of profit and loss, and the logical process and market mechanism through which I establish that all trade is mutually beneficial, including those trades made by successful business people who spend and make their money.
The Logic of a Win-Win Transaction
In a market economy, one accumulates wealth by enriching others through the exchange of goods and services, otherwise known as trade. As long as this act is voluntary, it is driven by self-interest, or the participants would refrain from doing so. Moreover, this principle is a priori true because it can be deduced from a chain of logical necessity from the action axiom—“man acts”—in the process of praxeology. To say “man does not act” would be contradicted by simply doing so because positing an opposing argument is an action. Thus, its denial is a performative contradiction, meaning this is always true because there is no logical alternative. But why is this important? In the words of Murray N. Rothbard, “Since praxeology begins with a true axiom, A, all the propositions that can be deduced from this axiom must also be true. For if A implies B, and A is true, then B must also be true.”
And so, on the matter of whether successful business people benefit others when making their money, one must first establish what it means to act. Rational action, as opposed to the reflexive kind, is purposeful behavior that employs means to reach a given end. There must be a felt uneasiness and uncertainty about the future compelling one to act because there is a desire for things to be different than they are or will become. If this motivation was absent, one would not be driven to do anything. Consequently, humans are always acting to fulfill a desire (whether the performed action does indeed accomplish its goal is beside the point; it does not change the fact that it was done to achieve a desired end).
Therefore, voluntary trade, a type of action, is always mutually beneficial because, by acting, one presupposes a preferred end. Simply put, voluntary exchange occurs because both parties are acting out a desire for the other’s property, so it is always a positive-sum game. Contrary to popular belief, someone can still act in their self-interest by endangering their physical or financial well-being because they subjectively deem an end to be more valuable. The point of saying “all freely chosen transactions are mutually beneficial” is to restate what necessarily follows from the action axiom: if someone chooses to take part in a transaction, whether it is smart or foolish, profitable or unprofitable, they choose it per their desires.
Economic Proof: The Right to Vote
Money is speech, from prices and interest rates, to profit and loss. It is the market’s way of communicating consumer demand, available supply, and a plethora of other information that guides economic decisions. When a company makes money, it is because consumers value their goods and services more than what they have to pay for them. The culmination of this desire results in a company’s revenue being higher than the total cost of their inputs. Conversely, if the general desire for a product pales in comparison to total cost, a company loses more money than it has made. These mechanics reflect how efficiently a company employs their means to satisfy consumer wants in a fiscal period.
In his book, The Principles of Economics, economist Frank A. Fetter famously compared the free market to “a democracy where every penny gives a right of vote,” capturing the essence of a consumer’s role in a market system. When buyers purchase what they desire,
…they make some enterprises profit and expand and make other enterprises lose money and shrink. Thereby they are continually shifting control of the factors of production into the hands of those businessmen who are most successful in filling their wants.
Consequently, if a business owner succeeds, it is because they serve their customers better and more efficiently than their competitors. Their existence, therefore, is beneficial to fulfilling their consumers’ wants.
The Incoherency of an “Unfair Trade”
Emerging in 16th to 18th century Europe, with the rise of political absolutism, mercantilism was an economic theory that promoted the regulation of a nation’s economy to augment state power at its colonies’ expense. Although its policies have been thoroughly debunked by advocates of laissez-faire and other economic systems, and thus rejected by most governing bodies, its outlook on trade is still prevalent in discussions today. Colonies were often exploited for their raw materials and labor, propagating the belief that in every transaction there is a winner and a loser.
However, this argument fails to see the distinction between coercive and voluntary exchange. Coercive transactions occur against the will of its participants. Moreover, the exchanges between a mother country and its colonies were a departure from voluntary choice as they occurred under the threat of violence to trade and even the use of force. Mother countries also established monopolies in varying markets using the state’s involuntary derived power.
Not only is mercantilism’s claim false empirically, but it also holds no water in logical discourse, as one cannot definitively claim an exchange is “fair” or “unfair.” But, for the sake of argument, let us entertain such an evaluation. In the middle of a scorching desert, desperate to quench his thirst, Paul buys a bottle of water for $100. Such a trade might be deemed “unfair” because of the high price or dire conditions, but why? What should the ideal price be? Or an ideal condition? Do these factors hold objectively across the board? In rigorous economic analysis, can we assume normative ends? Such an assertion would imply that there are results that should occur universally, but in what way do we go about determining what those ought to be? Is what is fair to you fair to everyone else? The answer is simply no. By virtue of undertaking an action, actors always seek to maximize their utility ex ante.
In Paul’s case, if he deemed his exchange for water as “unfair,” he would have saved his money, but he did not. He believed his condition could be made better by quenching his thirst, so he employed the means of $100 to achieve the end of obtaining water. Furthermore, Paul and the individual he traded with valued the others’ property more than they did their own, making their trade mutually beneficial to both their interests. Moreover, one may claim that the water was not worth the price, but that would have to imply that it has an intrinsic value rather than what is determined by his preference.
Conclusion
Nowadays, much of our society’s political and popular rhetoric is based on the belief that trade is a zero-sum game. However, individuals always seek the highest satisfaction from their actions, so one cannot rightfully claim that successful business people do not benefit others when making and spending their money through voluntary trade. That said, it is important to acknowledge that exchanges exist on a spectrum and clearly distinguish those that are voluntary from those that are coercive and can be rightfully labeled as exploitative.
Originally Posted at https://mises.org/
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