"All economic transactions involve a win/lose proposition.
Every gain involves a loss."
Lord Acton once said, "There is no error so monstrous that it fails to
find defenders among the ablest men." That was my reaction to a series
of articles recent written by national columnist Charley Reese. Over
the years, Reese has made reputation as a strong defender of individual
rights against a growing Leviathan, the federal government. So it was
all the more perplexing when I read some of his claims about
free-market capitalism:
- "Two people can't eat the same bean. That's the essence of
economics."
- "The historically visible trend [in capitalist societies]
is always for the rich to get richer and the poor to get poorer."
- "Only the youngest, the strongest can put stock in pure capitalism."
Statements like these were demolished years ago in Leonard
Read's classic little book, Cliches of Socialism, which was recently
updated by Mark Spangler under the new title,
Cliches of Politics
(Foundation for Economic Education, 1994). Unfortunately, some cliches
die slowly.
Let me respond to each one of these commonly held criticisms of
the free market.
Voluntary Exchange Is Win-Win
First, is the free market similar to a sporting event, where one
team wins and the other loses? Not at all. In every voluntary
transaction, both the buyer and seller gain. Here's a simple proof:
Suppose I sell an apple to a student for $1. The student buys the apple
because he would rather have the apple than the dollar bill. Thus, by
purchasing the apple, he improves his situation. On the other hand, I
sell the apple because I'd rather have the dollar bill than the apple.
I too am better off.
In "Das Capital," Karl Marx popularized the view that all exchanges
under free enterprise capitalism involved an equality of values and
therefore one person's gain must be another person's loss. But now we
see that just the opposite is true: All transactions in a voluntary
exchange involve an inequality of values. In fact, without an
inequality of values, no voluntary exchange would ever occur.
Because of an inequality of values, both the buyer and seller gain in
every transaction. The only exception to this law is when fraud or
deception is involved. When that happens, one party gains at the
other's expense. But in a voluntary exchange, where full and honest
information is revealed, everyone benefits.
The Essence of capitalism
Reese says that the essence of capitalism is contained in the
statement, "Two people can't eat the same bean." Not so fast, Charley.
A free market is not just an "either-or" proposition. Capitalism is
also a highly cooperative system. If there are two people and only one
bean, the free market provides a better alternative: plant the bean and
harvest enough beans to feed both people! That's the true essence of
capitalism.
Granted, natural resources are limited. But the beauty of free
enterprise is its ability to multiply these resources into goods and
services that people can use to increase their standard of living. What
really matters is not so much the amount of resources in their natural
state but the supply of economically usable natural resources, which
are limited only to the extent of our know-how and physical ability to
transform these inputs into usable wealth. In that sense, there is
virtually no limit to further advances in our standard of living. In
reality, nature isn't scarce, only the productive capacity of labor to
change nature into real wealth is.
Capitalism Can Improve Everyone's Standard of Living
Finally, Charley Reese is wrong in suggesting that capitalism
breeds inequality, that the rich get richer and the poor get poorer.
Under the free market, the rich get richer and the poor get richer too.
Historically, citizens of capitalistic nations have enjoyed higher real
wages and steady advances in the quantity, quality and variety of goods
and services. Only government, the politics of coercion, causes a
decline in the standard of living.
Moreover, the free market does not only benefit the young and
the strong, as Charley Reese suggests, but the weak, the poor, and the
discriminated. Contrary to popular belief, capitalism is not a
dog-eat-dog jungle where only the fittest survive. As the classical
economist David Ricardo demonstrated, the market is characterized by
comparative advantage, not just absolute advantage in the division of
labor. Therefore, opportunities abound for people of all abilities,
talents, religions and races. The less fortunate may not earn a high
wage, but they can and do benefit from the blessings of a
technologically advanced capitalistic society. Today practically
everyone, rich and poor, enjoys the benefits of electrical power, the
telephone, the automobile, television and radio, books and newspapers,
and a myriad other goods and services. Such everyday products were
available only to the wealthy less than a century ago.
A free society is by no means perfect. People make mistakes,
employers sometimes take advantage of workers, sometimes workers
shortchange their employers, and salesmen may deceive the public. But
the strength of the market is that bad business, deceptive practices,
and shoddy merchandise are constantly being overwhelmed by good
business, accurate information, and quality products. On net balance,
there is no substitute for the free-enterprise system.
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About the Author
Dr. Skousen is an economist at Rollins College, Department of Economics, Winter Park, FL 32798, and editor of Forecast & Strategies, one of the largest investment newsletters in the country.
Reprinted with the permission of The Foundation for Economic Education (FEE).
