Mises Daily Articles

Home | Mises Library | Understanding "Quid Pro Quo"

Understanding "Quid Pro Quo"

Tags Free MarketsValue and Exchange

10/23/2014Gary Galles

Like other spontaneously evolving systems, language tends to move in the direction of more effective cooperation. But sometimes usage distorts once-clear words into sources of confusion.

C.S. Lewis cited “gentleman” as an example. Its usage moved from stating a fact — a man who was landed and had a coat of arms — to a way of praising someone’s behavior, something we already had plenty of words for. But in the process, the word lost its ability to clearly communicate what it once meant.

Quid pro quo is a phrase that has similarly evolved from offering clarity to producing confusion. It originally meant “something for something.” That offered a useful distinction between voluntary market arrangements, in which people were induced to cooperate by being offered adequate compensation, and government arrangements (or robbery), in which such inducements need not be offered.

However, the usage of quid pro quo has evolved to typically mean an exchange of equally valuable goods or services. In the process, it has muddied the distinction between voluntary and involuntary arrangements.

Traded Goods Not Valued Equally

Market exchanges are not quid pro quo arrangements in its newer sense. Individuals’ self-interest would require that if you voluntarily traded me a baseball bat in exchange for a glove, it would have to be true that I valued the bat more than the glove and you valued the glove more than the bat. Every such exchange is better than equal for all parties.

As Clarence Carson recognized, “The equity consists in the advantage which each party receives, not in some sort of equality supposed to be in the goods traded.” Because both gain, improving their well-being in their own eyes, it is equitable. Inquiring into whether equal values were exchanged, when the exchange itself demonstrates that the parties involved placed different values on the goods or services in question, can only undermine understanding.

Wealth Gained from Every Free Exchange

Considering market exchanges as involving equal values also leaves people blind to the fact that artificial government restrictions which reduce the volume of willing exchanges destroys wealth that would have been created in the absence of those restrictions. These include taxes, tariffs, and onerous regulatory burdens that act like taxes; price ceilings and floors; entry barriers and other limitations on competition, etc.

The distortion of thinking in terms of supposedly equal, quid pro quo arrangements also extends to government redistribution. Such actions involve conferring additional rights on certain individuals. But since government has no resources but those taken from members of society, that requires the extraction of rights from others. Such actions may be portrayed by some as a quid pro quo between society and those “helped,” but that characterization is inherently inaccurate, because it leaves out what William Graham Sumner called “the forgotten man,” who is forcibly made a loser in those arrangements.

Government Wealth Redistribution Not True Quid Pro Quo

When no “quid” is offered to third parties who are involuntarily injured by such taxation or regulation, what is involved is not an exchange of equal values, but the unjust imposition of harm on some, backed by government’s monopoly on the legal use of coercion. As Clarence Carson put it, “To the extent that force plays a role, quid pro quo is not the rule.” After all, force is only necessary when something is involuntary.

Perhaps Frank Chodorov summarized government interventions best when he wrote:

It is a quid pro quo arrangement, by which the power of compulsion is sublet to favored individuals or groups in return for their acquiescence to the acquisition of power. The State sells privilege, which is nothing but an economic advantage gained by some at the expense of others ... it is never an honorable exchange, and therefore has to be enforced.

The idea that exchanges must be equal further opens the door to envy, which always degrades social cooperation. If exchanges are supposedly equal, people can easily be led to object that any time any trading partner earns “too high” a profit from a voluntary arrangement, it is “unfair” to others, even if they agreed to the arrangement without being coerced or misled. Not far behind are threats of added burdens or regulations (as with regulated utilities), and the costly uncertainty they entail, which undermine extent of, and the gains from, voluntary arrangements.

Prices and Voluntary Exchange

In the same vein, if arrangements are presumed to be equitable when made, price increases charged by sellers can always be characterized as inequitable, imposing unfair harm, and therefore something to be stopped. For instance, when demand rises sharply, the demand for “equal” exchanges mean that profits should not rise (after all, the producers didn’t do anything to “deserve” higher profits). Of course, it is those higher profit prospects that induce the increase in output over time in response to consumers’ wishes expressed in the marketplace. When reinforced by the widespread misunderstanding and demonization of profits (for which Karl Marx, who wrote in Das Kapital that “the exchange of commodities ... is an exchange of equivalents, consequently, no method for increasing value,” deserves much of the onus), this leads to further unneeded and unhelpful government oversight where none should exist, as with antitrust laws and gouging regulations.

The quid quo pro idea of exchanges involving equal values also brings with it the assumption that some outside body or person (e.g., the court system or the executive branch’s administrative apparatus) can determine whether an exchange was “equal” and potentially invalidate or forcibly modify it if it was not. Of course, absent fraud or coercion, all parties to such “unequal” exchanges expect to benefit, so both the question being asked and the potential “solution” of disallowing the arrangements are incapable of performing the Solomonic task set for them.

Perhaps even more important, as writers in the Austrian tradition have led the way in pointing out, no outsider can know all the determinants of value to everyone involved, including many the decision-makers themselves may be unable to articulate, but whose willing tradeoffs can nevertheless be revealed by their market choices. When government overrides those choices, that mode of communication is cut off, ensuring that any such attempt is an exercise in arbitrary government dictation in place of leaving both choice and responsibility in the hands of the owners involved.

Characterizing social arrangements as involving equal values is misleading. It sharply understates both the value created by voluntary market arrangements and the costs of government “improvements” to those results. It creates confusion and the leverage for envy to grow government, shrinking freedom and the social cooperation only freedom makes possible. And the new version of quid pro quo has offered society no compensation for the trouble it has caused.

Image source: iStockphoto

Gary Galles

Gary M. Galles is a Professor of Economics at Pepperdine University and an adjunct scholar at the Ludwig von Mises Institute. He is also a research fellow at the Independent Institute, a member of the Foundation for Economic Education faculty network, and a member of the Heartland Institute Board of Policy Advisors.