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A Society of Mutual Benefactors

Mises Daily: Tuesday, May 25, 2010 by

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[An MP3 audio file of this article, read by Steven Ng, is available for download.]

'Drawing Hands' (1948) by M.C. Escher (1898-1972)

Checking out at the grocery store the other day, I paid for my sack of rolls. The checkout person handed me my bag.

"Thank you," I said.

"You're welcome," she replied.

I walked away with a sense that something was wrong. Do checkout people usually say, "you're welcome" and nothing else? Not usually. Usually they say, "thank you," same as the customer says. (Remember, we are talking about the American South, land of politeness, here.)

I was left with an inchoate sense of: "hey, I did something for you too."

When do we say, "you're welcome"? We say that when we give a gift (a good or service) to a person without receiving anything in return. For example, I might hold a door for a person. That person says, "thank you," and I say, "you're welcome." Another time might be at a birthday party when the recipient of a gift expresses thanks.

These are one-way examples of benefaction. We are giving but not necessarily getting anything tangible in return. What makes the case of the commercial exchange different? Why do both parties say, "thank you"? It's because each side gives a gift to the other.

When I bought those rolls, this is precisely what happened. I saw rolls available and I decided that the rolls were worth more to me than the $2 I had in my pocket. From the store's point of view, the $2 was worth more than the rolls being given. Both parties walk away with a sense of being better off than they were before the exchange took place.

The checkout person is there to facilitate this exchange and speak as a proxy for the interests of the store. The store was receiving a gift of money (more highly valued than the rolls) and I was receiving the rolls (more highly valued from my point of view than the $2 I gave up to get them).

This is the essence of exchange and the core magic of what happens millions, billions, trillions of times every day all over the world. It happens in every single economic exchange that is undertaken by virtue of human choice. Both sides benefit.

Each side is a benefactor to the other side. This system of mutual benefaction, unrelenting and universal, leads to betterment all around. It increases the sense of personal welfare, which is to say, it increases social welfare when everyone is involved in the activity.

To be sure, a person might change his mind later. I might arrive home with my rolls and discover that I'm out of butter and that I would have been better off buying half as many rolls and using the rest of my money to buy butter. I might decide to drop bread from my diet. I might conclude that rolls are really not that tasty. All these things can happen. Such is the nature of the universe that the future is uncertain and human beings are inclined to be fickle. But at least at the time of the exchange, I believed I was better off, else I would not have made the exchange in the first place. I walked away with a sense of gain. The store owners had the same sense of gain. We both expect to gain, which is enough to recommend the exchange system, since no social system can guarantee a happy outcome for every action.

"Anyone who champions the well-being of society should especially celebrate commercial centers, stock markets, international trade, and every sector in which money changes hands."

Now, if all of this seems obvious and not even worth pointing out, consider that most philosophers in the history of the world have missed this point. Aristotle, for example, reflected at length in his Nicomachean Ethics on the issue of economic exchange, but he started with the assumption that exchange takes place when valuation is equal or commensurate. But what about cases in which it seems obviously incommensurate, such as when highly valued and rare physician services are traded for something widely available like corn? Aristotle believed that the existence of money serves to somehow equalize the exchange and make it happen, when it should be apparent that money itself is only a good introduced to make exchange more convenient.

The problem he faced was his initial premise that economic exchange is based on the equal value of items in the exchange. This is just wrong. If two people value goods equally, an exchange would never take place, since no individual could be made better off than before. If exchange is based on equal value, people are merely wasting time engaging in it at all. Exchange in the real world is based on unequal valuations of goods and expectation of being made better off. It is a matter of two people who give each other gifts in their own self-interest.

The discovery of the correct theory of exchange had to wait until the late Middle Ages when the followers of St. Thomas Aquinas saw the logic for the first time. They saw that economic exchange was mutually beneficial, with each party to the exchange seeing an increase in personal welfare, subjectively perceived. Therefore the action of exchange on its own becomes a means of increasing the well-being of all people. Even if there is no new physical property available, no new innovations, no new productivity, wealth can be increased by the mere fact of exchange-based human associations.

As with many postulates of economics, this seems very obvious once you see it but it is evidently not obvious at all. In fact, I've observed that many people's underappreciation of the contribution of the market order is rooted in the perception that buying and selling stuff really amounts to nothing wonderful at all. It is just a swirl of churning and burning for the sake of nothing in particular. Society could easily do away with it and be no worse off.

I have a hard time figuring out what people who believe this are thinking. Let's say that I proposed abolishing gift giving. Wouldn't it be obvious that society would be worse off if I got my way? We would no longer enjoy the material manifestation of the appreciation of others, and we would all be denied the chance to show others our appreciation of them.

Well, if it is true, as I've argued, that an economic exchange is a two-way gift, an instance of mutual benefaction that is pervasive throughout society, it becomes clear that society would be completely sunk without as many opportunities as possible for economic exchange. Anyone who champions the well-being of society should especially celebrate commercial centers, stock markets, international trade, and every sector in which money changes hands in exchange for assets or goods. It means nothing more than that people are finding ways to help each other get by and thrive.

As 16th-century Spanish theologian Bartolomé de Albornoz, known mostly for his opposition to slavery, wrote,

Buying and selling is the nerve of human life that sustains the universe. By means of buying and selling the world is united, joining distant lands and nations, people of different languages, laws and ways of life. If it were not for these contracts, some would lack the goods that others have in abundance and they would not be able to share the goods that they have in excess with those countries where they are scarce.

However, if we do not quite see the underlying logic of exchange and how it works to help everyone, it is easy to underappreciate what market trading means to society. This is a tendency in the circles that discuss issues of social justice. The market is rarely given the credit it deserves for helping humanity improve its lot. In fact, the market is nothing but the cooperative interaction of humanity in improving the commonweal.

Mises Academy

The fallacy of value equivalence in exchange has been refuted for some 500 years, and yet it keeps reappearing. Economics is one of those sciences that requires careful thought. It can't be quickly intuited from a handful of moral postulates. It must be studied and understood with deductive tools and patient delineation of a wide range of concepts. It is because of this that economics as a science was so late in developing. But it is not too late for us to understand.

The understanding of economics leads to a direct appreciation of the contribution of free markets to the well-being of all. If you read something that seems to disparage the market economy, it is more than likely that a fallacy such as the above is at the root.

At some point today, you will undoubtedly engage in some economic exchange. Use the opportunity to reflect on what a glorious dynamic underlies it. You can say, "thank you." The person who takes your money can say, "thank you." Such opportunities account for most of the peace and prosperity we enjoy this side of heaven.