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The basic unit of all economic activity is the un-coerced, free
exchange of one economic good for another based upon the ordinally ranked subjective
preferences of each party to the exchange. To achieve maximum satisfaction from
the exchange each party must have full ownership and control of the good that
he wishes to exchange and may dispose of his property without interference from
a third party, such as government. The exchange will take place when each party
values the good to be received higher than the good that he gives up. The
expected, but by no means guaranteed, result is a total higher satisfaction for
both parties. Any subsequent satisfaction or dissatisfaction with the exchange
must accrue completely to the parties involved. The expected higher
satisfaction that one or each expects may not be dependent upon harming a third
party in the process.
Several observations can be deduced from the above explanation. It is
not possible for a third party to direct this exchange in order to create a
more satisfactory outcome. No third party has ownership of the goods to be
exchanged; therefore, no third party can hold a legitimate subjective preference
upon which to base an evaluation as to the higher satisfaction to be gained.
Furthermore, the higher satisfaction of any exchange cannot be quantified in
any cardinal way, for each party's subjective preference is ordinal only. This
rules out all utilitarian measurements of satisfaction upon which interventions
may be based. Each exchange is an economic world unto itself. Compiling
statistics of the number and dollar amounts of many exchanges is meaningless
for other than historical purposes, both because the dollars involved are not
representative of the preferences and satisfactions of others not involved in
the exchange and because the volume and dollar amounts of future exchanges are
independent of past exchanges.
Let us examine a recent, typical exchange that violates our definition
of a true exchange yet is justified by government interventionists
today--subsidized, protected, and mandated use of ethanol. Number one, the use
of ethanol is coerced; i.e., the government requires its mixture into gasoline.
Government does not own the ethanol, so it cannot possibly hold a valid
subjective preference. The parties forced to buy ethanol actually receive some
dissatisfaction. Had they desired to purchase ethanol, no mandate would have
been required. Therefore, including the dollar value of ethanol sales in
statistics purporting to measure the societal value of goods exchanged in our
economy is meaningless. This is just one egregious example of many such
measurements that are included in our GDP statistics purporting to convince us
that we have "never had it so good".
Our flawed view that governments can improve satisfaction caused us to
misjudge the military threat of the Soviet Union for decades. Our CIA placed
western dollar values on Soviet production data to arrive at the conclusion
that its economy was growing faster than that of the US and would surpass US
GDP at some point in the not too distant future. Except for very small exceptions,
all economic production resources in the Soviet Union were owned by the state.
This does not necessarily mean that it was possible for the state to hold a
valid subjective preferences, for those who occupied important offices in the
state held them at the sufferance of what can only be described as gang lords,
who themselves held office very tentatively. State ownership is not real
ownership. Those in positions of power with responsibility over resources hold
their offices for a given period of time and have little or no ability to pass
their office on to their heirs. Thus, the resources eventually succumb to the
law of the tragedy of the commons and are plundered to extinction. Nevertheless
the squandering of the Soviet Union's commonly held resources was tallied by
our CIA as meeting legitimate demand.
Professor Yuri Maltsev saw first-hand the total destruction of the
Soviet economy. In Requiem for Marx he gives a
heartbreaking portrayal of the suffering of the Russian populace through state
directed, irrational central planning that did not come close to meeting the
people's legitimate needs, while our CIA continued to crank out bogus
statistics of the supposed strength of the Soviet economy upon which the Reagan
administration based its unprecedented peacetime military expansion. Maltsev,
an Austrian economist, was unable to convince Gorbachev's government to allow
private ownership of the nation's resources. Without private ownership of
production resources, there could be no true ordinally held subjective
preferences for their rational allocation. Gorbachev's other reforms were half-hearted
and mis-implemented. They were insufficient to prevent the imminent collapse of
the Soviet economy.
With the proviso that no exchange may harm another, as explained so
well in Dr. Thomas Patrick Burke's book No Harm: Ethical Principles for a Free
Market, we are led to the conclusion that no outside agency can create
greater economic satisfaction than can a free and un-coerced exchange. The
statistics that support such interventions are meaningless, because they cannot
reflect the satisfaction obtained from true ordinally held subjective
preferences. Once this understanding is acknowledged and embraced, the
consequences for the improvement of our total satisfaction are tremendous. Our
economy can be unshackled from government directed economic exchanges and
regulations. The "no harm" principle can be enforced by normal
commercial and criminal law. For example, since one may not pollute the waters
that are used by others, normal tort law, which is based primarily upon
precedence, would replace costly EPA compliance regulations, which are based
primarily upon statute law and bureaucratic regulation. All labor laws can be
scrapped, which would reduce the cost that businesses must bear to support
extensive human resources departments, which have become little more than arms
of government agencies. Freedom to engage in any economic exchange that causes
"no harm" would extend internationally, too. All trade restrictions
would be seen to be illogical and unnecessary. Satisfaction increases with
greater opportunities for un-coerced exchanges; therefore, international trade restrictions
are counter-productive. The revival of the free trade movement would benefit
world peace and result in fewer scarce resources directed to national defense.
In conclusion we see the consequences that can accrue from a better
understanding of the true nature of economic exchange. Be on your guard for
those who claim to be able to improve our satisfaction and protect us from harm
through expansion of government coercion in the market.
