From the Unconstrained Trade.

Doc Zero at HotAir’s Green Room has a long post up on Why Big Government Doesn’t Work. You should read it; the Doc’s heart is in the right place, and there’s some good material there. Go ahead. I’ll wait.

Unfortunately, the good Doc doesn’t go deep enough. The arguments are correct, mind you, but they’re all based on the conventional explanations. They will fall completely flat, because the Leftoids long ago developed facile counters to the conventional explanations, and when the subject comes up they’ll just trot them out and win the “debate”.

It’s necessary to go beyond the conventional arguments and all the way back to basics if we are ever to gain any traction, much less prevail. I’ve tried to address some of those basics here, but one I haven’t gone into detail about is the fundamental source of all “wealth”: the unconstrained trade.

“Unconstrained Trade” is a libertarian concept, and like many libertarian concepts it’s correct — but the libertarians develop it wrongly, and thus end up losing the argument because the development is clearly off base.

So–

Suppose A has X, and B has Y. At this level it’s merely distracting to argue about who “A” and “B” are, what “X” and “Y” might actually be, and what the meaning of “has” is. Take A and B as entities whose only attribute is that they “have” things, X and Y as things whose only property is that somebody “has” them, and “has” as containing all the usual meanings and their corollaries; the concept is clearer that way.

A has X, and B has Y. Four possibilities then follow:

  1. A wants X, and B wants Y.
  2. A wants X, and B wants X.
  3. A wants Y, and B wants Y.
  4. A wants Y, and B wants X.

Again, let’s not quibble about the verb — “wants” has its colloquial meanings, both “desire” and “lack”, OK? We also aren’t going to allow consideration of what else A and B might “have” or “want”, because it obscures the point.

Case 1 results in stasis absent outside intervention. Both parties are content with what they have.

Cases 2 and 3 are mirror images of one another. They, too, result in stasis absent outside intervention, because if A is satisfied with X he won’t consent to a change despite B’s desires, and contrariwise if B is satisfied and A isn’t.

In case 4, both parties are unsatisfied. The solution is that they trade, that is, A acquires Y from B, and B gets X from A. No third party need intervene; the two are perfectly capable of arranging the trade on their own. This is the unconstrained trade.

Before the trade, A and B were both unsatisfied. After the trade, they are satisfied — they are happier, more content, wealthier. They have more of what they “want” than they did before, and since they are both embedded in a society, the society they live in has an increment of wealth.

This is where wealth comes from. Yes, yes, I hear you, there are hugely elaborate systems for counting and allocating wealth, but they are complications on top of the fundamental principle. In particular, it’s necessary to have some system for realizing A and B’s newfound wealth and converting it into something that’s portable and can be used in further exchanges; that’s what money is for.

With that in mind, look back at the other three cases. In case 2, A is satisfied and B is not. Suppose C comes along and compels A and B to trade, despite A’s obstinacy. What is the result?

B is more satisfied, happier, wealthier. A is less satisfied, less wealthy. It’s a zero sum. The society they live in has neither gained nor lost wealth as a result of the trade. The same thing happens if C compels a trade in case 3, except that B loses and A gains. What may not be obvious is that C had to expend resources — diminish wealth — in order to manage the compulsion. Society as a whole is less wealthy — the trade had a zero sum, but society (through C) had to pay to get it done.

Case 1 is even worse. If C compels a trade, A and B are both less happy, less satisfied, less wealthy than before. For the society in which they live, the compelled trade is a net loss — and the resources C had to expend to compel the trade are lost as well.

It gets even worse if you add in the thermodynamic considerations. Even in the unconstrained trade, thermodynamics tells us there will be loss; A and B’s sum of happiness, of wealth, is less than it would be if they had already had what they wanted and the trade wasn’t necessary — entropy has increased, obedient to the Third Law. Entropy also increases in the three cases of compulsion, adding to the societal losses.

It ain’t that simple! No, it isn’t. No real society, in which A, B, X, Y, and C have other attributes than in the ideal situation depicted here, can manage unconstrained trade throughout. Among other things, there may be robbery — if A or B has compulsion at their disposal, they may compel a trade in cases 2 or 3 without needing a C to intervene. This gives us a hint as to how to maximize the wealth of a society: if C is to intervene at all, it should be to maximize the possibilities for unconstrained trade. If C intervenes in a robbery to prevent it, the resources necessary to do that are lost but the trade loss is prevented, which minimizes the losses.

All an intervenor can do is minimize the losses. If C wants to maximize wealth, the correct policy is to maximize unconstrained trade and confine intervention to minimizing loss. Any other strategy increases the losses, rather than preventing them.

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