5. Social Cooperation and The Market

5. SOCIAL COOPERATION AND THE MARKET

SUGGESTED ACTIVITIES

1. Discuss with the students their experiences with pets or wild animals. Has any of them ever noticed animals engaging in what might be interpreted as (a) purposive, conscious action? (b) specialization? concentration on a single task? (c) division of labor? (d) exchange? or (e) cooperation? The complex communities and specialized activities of ants and bees are frequently cited as examples of the division of labor and specialization, although this type of adaptation to specific tasks appears genetic and instinctive, having nothing in common with the purposive or conscious actions of human beings. However, some of the more highly developed animals appear to use rudimentary reason and logic at times. For instance, there seems to be some division of labor or specialization among the three small dogs in the author’s household. One of the three, “Tommy,” is definitely the spokesman for the other two, barking for all three when any one of the three wants to go out or in. Upon occasion, “Tommy” seems to reason and plan ahead—if his mother or sister is sitting where he wants to be, he barks with excitement as if a dog or cat intruder were in the yard and then, when they jump down and run outdoors to investigate, he hops up and lies down in the spot just vacated. Many animals learn to respond with apparent reason to various commands. Also many stories have been told of animals that have shown considerable intelligence in warning people of danger, rescuing them from trouble and helping to find lost persons. However, the students should realize that animals reason and cooperate only to a very limited extent as compared with men. The ability of human beings to (a) act purposively, (b) specialize, (c) arrange for the division of labor, (d) make exchanges, (e) cooperate is so much more developed that, for all practical purposes, we may consider them the only creatures we know of on earth who are capable of reason, logic and purposive action.

2. To give the students some idea of the tremendously complex system of cooperation on which each depends every day, have them speculate on the countless numbers of persons who cooperate daily with them in various ways. To be sure, each of us may be actively aware of frequent frustration due to non-cooperation—on the part of slow drivers, shoddy workmanship, construction barriers blocking normal routes, family problems, and the like. Yet every one of us benefits at every instant from countless acts of cooperation. List individual workers and categories of persons (employees, employers, inventors, savers, investors, administrators, salesmen, truck drivers, and so on) whose cooperation supplies us all with daily food, clothing, shelter, transportation, books, entertainment, etc. Frederic Bastiat’s thoughts along a similar vein might help to spark the discussion:

3. If time permits, research might be assigned into the historical developments of markets. This would give the students a chance to notice how the voluntary cooperation of individuals, each acting in the hope of accomplishing his own personal goals and values, in the light of the conditions under which he lived, gradually led to exchange from community to community, then across national borders and eventually to trade that is practically worldwide. Such trade made it possible for people to have things they couldn’t produce locally. Information on the history of early developments of trade and markets is pretty well scattered. It is frequently found in texts and reference books with material on the development of towns or cities, life in ancient Greece or Rome, the Phoenicians, medieval fairs and markets, the trading companies of the 16th and 17th centuries, such as the East India, Virginia and Plymouth Companies (the shipment of fur pelts to England was an important industry of Plymouth’s early years), China trade and the clipper ships, piracy, etc. (If students should choose to study piracy on the high seas or wars, for example, they should try to show in each case how this particular form of violence delayed, made more difficult, or prevented the voluntary cooperative efforts of acting individuals.) Papers or reports on the history of trade routes and the development of commerce could be turned in and/or discussed in conjunction with Unit 12 on “Interregional Trade” or Unit 15 on “Economic History.”

4. To relate classroom lectures and student papers or reports to this particular unit on “Social Cooperation and the Market,” special emphasis should be given to these three points:

a. Voluntary cooperation takes place at every step along the way.

b. Barring force, fraud or human error, everyone who cooperates voluntarily hopes to gain by accomplishing some particular want or goal on his or her own personal scale of subjective values.

c. Those who acquire the new goods or services, made possible by the expansion of cooperation, also benefit insofar as they are able to accomplish a want or goal on their scale of values which they otherwise couldn’t have at all, or at least not so easily.

EXPLANATORY TEXT

As pointed out in Unit 2, economics is the study of the actions of individuals. As everyone of us is an acting individual himself, we all have a priori knowledge of the nature of action We know first hand that action is purposive. We can make plans and take actions in the hope of attaining specific ends, because we live in an “ordered world” characterized by regularity, logic, causality, time, change, value.

In Unit 3 we learned that everyone of us has his own personal (subjective) values and goals in life. Consciously or unconsciously, each of us ranks these various wants on a scale of values in the order of their relative importance to him or her. At any instant, everyone is always trying to relieve the “felt uneasiness” he finds most aggravating or to satisfy the want he considers most urgent. We are always looking for the most suitable means for accomplishing our various purposes. We hope that, if we can avoid making mistakes, our actions will have the results intended and lead to the goal we desire.

As explained in Unit 4, the necessity of being able to use resources as we wish, to serve our purposes, makes the right to own property important. Persons with private property can exchange goods and services with one another. This permits them to specialize and divide work up into simpler, more easily mastered activities. Exchange of the products of their relatively more specialized labor then follows. Thus, the division of labor and trade are logical outcomes of the institution of private property which, in turn, derives from the a priori premises we have discussed—namely, that men act, have values and seek goals.

When people specialize and trade, they can satisfy more of their wants more easily than if each had to be a “jack of all trades,” relying only on his own production. In Unit 5, we shall be considering one more logical outcome of purposive human action—namely, cooperation and the development of markets and the market economy.

1. How do the actions of animals and the actions of human beings (men) differ? The distinction between the actions of animals and the actions of men is not always sharp and clear. Some animals appear to act as if they were reasoning. Apes have been reported to use sticks as “tools.” Some animals even seem to plan an action for the purpose of accomplishing a later, more distant goal. However, this ability of animals to think and act logically is obviously limited. Human beings, on the other hand, reason, act purposively, seek goals and develop plans of great complexity, covering extensive periods of time. They are not so rigidly bound by genetic characteristics and instincts as are ants, bees, birds, for instance, and even elephants, apes, dogs and horses. Only men seem to have unlimited wants. Only men appear able to use mind and imagination to adapt available resources to serve their own ends and to alter their environment substantially to suit them better. Only men seem to take advantage of their unique individual talents to develop specialized skills, divide up the work and trade their products with one another. Only men seem to recognize the tremendous potential advantages of social cooperation. Thus, there seems to be a fundamental difference in character between the actions of animals and the actions of men.

2. What are the advantages of interpersonal or social cooperation? Different individual traits, capabilities, interests (physical, mental, emotional, etc.) lead quite naturally to a certain amount of specialization and cooperation within a single family or primitive tribe. Logic leads people—even most simple minded, untrained and unskilled persons—to recognize still further potential advantages from wider social cooperation which experience and observation soon bear out.

Interpersonal cooperation proves helpful in many ways. One obvious advantage is to make possible more difficult tasks than could be accomplished by one man alone. Two or more men cooperating might shove a large boulder, that one man alone could not budge, over a cliff to kill an enemy. Two or more men cooperating might corner an animal that would escape a single hunter. With a second man to help, Crusoe might have been able to drag to the water’s edge the huge tree he had hollowed out to make a boat in which he hoped to escape his island.

Persons who are stranded alone in the wilds—the occasional downed pilot, hunter or explorer—find life difficult at best. They may forage for themselves or try to improvise with their limited knowledge and the few tools available to them, but alone they can accomplish very little. Many who have survived such experiences have written books about them. However, if a person in such a predicament has a cooperative companion or two, as Robinson Crusoe did after rescuing Friday, they can do more, more easily, are more likely to survive in better condition until help comes, or even to be able to rescue themselves. The larger the number of persons in the group, the more opportunities there will be to cooperate for mutual benefit. When several families form a society, the opportunity to gain through social, interpersonal, cooperation multiplies. As more and more persons become involved and cooperation extends to other communities, the opportunities to specialize, to take advantage of individual talents and interests increase many times over and the division of labor can be still further extended. This encourages the growth of skills, improves efficiency, contributes to increased production and makes more free time available to rest, to play and to think.

As gains from social cooperation become greater, they spiral upward, creating still further benefits. See Fred I. Kent’s “Letter to His Grandson” (Reading No. 19). As the numbers of persons and communities cooperating increase, the areas of specialization and trade can be broadened in character as well as geographically. If this process is permitted to continue and is not disrupted by cataclysms of nature, war or violence of other kinds, the opportunities for developing new ideas and new ways to cooperate so as to contribute to human welfare seem almost endless. Thus, social cooperation, a logical development from the ideas and purposive actions of countless individuals over ages, is a very significant means for expanding available resources so as to better satisfy human wants, and reduce the gap, described in Unit 4 (p. 21), between the limited resources available and the unlimited wants of men. By cooperating with many persons—die more the better—everyone of us is in a better position to alleviate the “economic problem” than if we lived alone in isolated family units, or in a less extensive market economy.

3. How is cooperation arranged? Strictly speaking, there are only two ways to organize cooperative effort—(a) by force, command, order, direction, decree, or (b) by voluntary, interpersonal agreement and contract. Totalitarian states, dictators and armies use the first method, issuing orders and assigning a rigid channel of command, thus creating a command society. Individuals living in a free market economy adopt the second method, so that a contract society evolves.

a. Chronologically: Recognition that interpersonal cooperation could be helpful certainly came well before the age of written history. Thus to speculate on the historical development of the present market economy, one must try to think back to the age of prehistoric man and imagine how one man’s wants and actions may have led to cooperation with others. Perhaps the first cooperative effort occurred when several hunters tracked down a dangerous animal that had been killing their children and laying waste their meager hoards of food. Maybe someone shared a lucky find—a burgeoning berry patch or a freshly killed animal—with another, in exchange for help in erecting a shelter. Or perhaps one man helped another who was struggling to roll a large tree trunk to the water’s edge and the two together succeeded where one alone had failed. It could be that one of these two, or a third man who chanced along, then conceived of a new idea for binding several such tree trunks together to make a raft to carry several persons or extra provisions. In any event, the success of one cooperative effort must have led the participants to reason that other cooperative efforts might also be helpful. One successful cooperative effort is likely to spark others, as well as new ideas for improving conditions. In this way, step by step, cooperation led to larger and more elaborate enterprises. Such huge firms as GM, GE, IBM and U. S. Steel are merely the products of countless acts of cooperation on the part of thousands of persons—thinkers, teachers, inventors, workers and savers—over long periods of time and space.

The earliest known archeological finds, the cave paintings of Southern Europe and other artifacts from ancient times, furnish evidence that men have cooperated in countless ways for many thousands of years. In early Egypt, there must have been considerable trade and communication among communities along the Nile. With the Phoenicians, Greeks and Romans, the area of contact and cooperation expanded and commodities were traded beyond the Mediterranean, even as far north as the present British Isles.

With the fall of Rome, the Empire’s large trading area and its rather large market built on widespread social cooperation, specialization and division of labor deteriorated. Europeans of the Middle Ages lived in fairly small, substantially self-sufficient communities, having relatively little contact with the outside world. It took centuries for a substantial international trade to develop once more— step by step as a result of the activities of many persons. In medieval times there were only a few itinerant peddlers. The Crusades helped to open up the Far East trade, primarily in luxuries such as silks and spices. Then gradually traders from a few Italian cities and from the North Sea ports began to extend the area of cooperation and exchange. Periodic fairs and markets were held in medieval towns. Tradesmen and artisans congregated in the larger communities, which increased in population over centuries until they became sizeable cities. In the 15th, 16th and 17th centuries, explorers sought new routes to the Orient. Trading companies opened up new sources of raw materials and eventually established trading posts. Several of the American colonies were settled as business ventures, intended to supply their backers with fur pelts, tobacco and other raw materials not readily available in Europe.

It is relatively simple to trace the chronological development of interpersonal cooperation in this hemisphere from the time the first colonies were established here. There is no need to review U. S. history in an economics course. The important thing to point out in this Unit is that the historical evolution of trading furnishes many illustrations of benefits to be derived from interpersonal social cooperation.

b. Economically: The second approach to explaining how social cooperation leads to the market economy starts with the final consumer, the person who buys something in a store for his own personal consumption. Let us consider a simple lead pencil for instance. At each stage in the production of a pencil, all those who cooperate must somehow be furnished with (1) the education and training necessary for their jobs, (2) the specific tools of their trade and (3) the food, clothing, shelter they need to survive as well as (4) all other things they purchase for themselves and families. To supply a single worker in this far-ranging chain of production with even one single thing he needs to do his job calls for widespread cooperation among a huge assortment of producers, just as it does to produce the pencil itself. Thus, every stage in the production of the pencil calls for the production of other tools also which demand different kinds of knowledge and different assortments of skills. This elaborate network of highly developed cooperation—needed to produce a simple pencil— reaches into all four corners of the earth and calls for so much specialized knowledge and skill that no one person can comprehend it all. See Leonard E. Read’s “I, Pencil” (Reading No. 15).

When we realize that something apparently so simple as a lead pencil involves the cooperation of so many specialists that no one man can master all the knowledge and skills involved, we may begin to have some idea of the tremendously complex and almost miraculous cooperation required to supply each of us with the many things we use and consume every day—not only pencils but also cans of soup, clothing, homes to live in, electronically-produced entertainment, trucks, automobiles and so on almost ad infinitum. The purchase of a pencil or anything else relies on a long chain of cooperative activities, each undertaken by individuals acting consciously and purposively, to attain his own personal (subjective) wants and values. Each hoped to gain through cooperating with others who expected to gain too in the process. The individuals who produce the many things we use are brought into contact through this network of cooperation. As the final stage in its production, the things we buy are transported to stores and advertised to attract potential consumers. In this way social cooperation makes production and the market possible.

c. Schematically: A third way to visualize how everyone is connected with everyone else through the market process is to imagine that we can take a giant photo of the entire market economy. Let us pretend we have a giant camera with a magic lens and special film. Let us assume that if we were to snap a picture with such a magic camera it would reveal the complex worldwide network of interpersonal agreements and contractual bonds as they exist at a specific instant. Such a magic photo would look like a tremendous spider web. At the center would stand an individual, whatever individual the camera focused on. Radii would extend like spokes from that particular person to all other persons with whom he had agreements or commitments at that particular moment—landlord, employer, grocer, tailor, banker, etc. All these radii would also be connected by cross bars with countless other radii in the “cobweb,” as this particular individual’s banker, landlord, employer, grocer, tailor and banker also have agreements with many others.

If our magic camera were to focus at that same instant on another individual in the market, it would reveal that individual also standing at the center of a similar web-like network of interpersonal agreements, all overlapping in an extremely intricate arrangement. Theoretically each of us stands at the center of such a cobweb of economic and legal agreements. The possibility of a photo which can reveal all these inter-connecting economic and legal relationships is just as fictitious, of course, as the magic camera we have imagined. However, visualizing such a photograph may help students recognize the intricacies of the many cooperative activities going on at any moment in a sizeable market economy.

SUMMARY

Social cooperation is a logical outcome of the nature of human action. As individuals act consciously to attain their various goals they find interpersonal cooperation is a helpful technique or “tool.” It helps them accomplish more than they could alone. Working with others, they can satisfy more of their various wants and values than they could by acting alone, increase production and, thus, narrow the “gap” between their available resources and unlimited wants and so relieve the “economic problem.”

One cooperative effort leads to others. Trade or exchange is one form of cooperation. In time, men develop markets where they may exchange on a more or less organized basis. As more and more persons cooperate and trade, the market economy expands and interpersonal agreements become more and more complicated. Nevertheless, intricate though the market economy becomes, we should never lose sight of the fact that at any particular instant it is always the end result of the countless actions, choices, preferences, exchanges, and cooperative efforts individuals have made over time and place in the past, each in the attempt to attain some personal (subjective) value or goal. To recapitulate briefly:

1. Acting men recognize that there are advantages to be derived from cooperating

2. Cooperation means helping others in the expectation of mutual gain

3. Trade is a cooperative effort, by which both parties to the trade give and both receive some good or service they could not otherwise have. Thus barring force, fraud and error, cooperation helps everyone

4. Through cooperation, everyone who gives and receives is encouraged to specialize further and comes to rely on exchanges for the things they want and need

5. With increasing trade, everyone becomes more and more interdependent. As a result, markets develop. Today’s complex market economy is simply the logical and natural outcome of countless purposive actions of individuals, each always seeking, as best he can under the circumstances, the most urgent goal on his personal scale of values.

GLOSSARY WORDS

(For definitions, see clossary, pp. 223ff.)

Command society

Contract society

Cooperation, social and interpersonal

“Economic problem”

Free market Market

Market economy

Market process

Resources

Specialization

Totalitarian government

Trade

Footnotes

1 “Departments” are political subdivisions of France. This is comparable to saying all 50 states contribute to the provisions trucked each night into Los Angeles or New York.

2 pp. 97-98 in the anthology of Bastiat essays, Economic Sophisms, 1964/1968.

3 For a detailed treatment of the economic history of the world, see Unit 15.

4 “For a fuller explanation of the economic development of markets, see especially Units 7 and 8.

1On coming to Paris for a visit, I said to myself: Here are a million human beings who would all die in a few days if supplies of all sorts did not flow into this great metropolis. It staggers the imagination to try to comprehend the vast multiplicity of objects that must pass through its gates tomorrow, if its inhabitants are to be preserved from the horrors of famine, insurrection, and pillage. And yet all are sleeping peacefully at this moment, without being disturbed for a single instant by the idea of so frightful a prospect. On the other hand, eighty departments have worked today, without co-operative planning or mutual arrangements, to keep Paris supplied. How does each succeeding day manage to bring to this gigantic market just what is necessary—neither too much nor too little? What, then, is the resourceful and secret power that governs the amazing regularity of such complicated movements, a regularity in which everyone has such implicit faith, although his prosperity and his very life depend upon it? That power is an absolute principle, the principle of free exchange. (1845)
2On coming to Paris for a visit, I said to myself: Here are a million human beings who would all die in a few days if supplies of all sorts did not flow into this great metropolis. It staggers the imagination to try to comprehend the vast multiplicity of objects that must pass through its gates tomorrow, if its inhabitants are to be preserved from the horrors of famine, insurrection, and pillage. And yet all are sleeping peacefully at this moment, without being disturbed for a single instant by the idea of so frightful a prospect. On the other hand, eighty departments have worked today, without co-operative planning or mutual arrangements, to keep Paris supplied. How does each succeeding day manage to bring to this gigantic market just what is necessary—neither too much nor too little? What, then, is the resourceful and secret power that governs the amazing regularity of such complicated movements, a regularity in which everyone has such implicit faith, although his prosperity and his very life depend upon it? That power is an absolute principle, the principle of free exchange. (1845)
3How does a complex market economy, like the one we have today, evolve from the simple exchanges and cooperative efforts of a few individuals? There are at least three ways to speculate on the make-up of today’s market economy—(a) chronologically, as the outcome of an irregular historical development since time began, evolving as a result of countless events and purposive actions of individuals, (b) economically, starting with a specific item purchased by a particular person and tracing its production in time and space throughout the economy, back to the entrepreneurs whose original ideas were responsible for its creation, and (c) schematically, as if one were to snap a giant photograph with a tremendous magic camera, equipped with special lens and film that could freeze and record every activity going on throughout the entire economy at one particular instant, revealing the elaborate legal and economic network of interconnecting cooperative agreements and contracts. The mutual interdependence of every one of us may be demonstrated by all three approaches. To explain more fully, let us examine each in turn.
4How does a complex market economy, like the one we have today, evolve from the simple exchanges and cooperative efforts of a few individuals? There are at least three ways to speculate on the make-up of today’s market economy—(a) chronologically, as the outcome of an irregular historical development since time began, evolving as a result of countless events and purposive actions of individuals, (b) economically, starting with a specific item purchased by a particular person and tracing its production in time and space throughout the economy, back to the entrepreneurs whose original ideas were responsible for its creation, and (c) schematically, as if one were to snap a giant photograph with a tremendous magic camera, equipped with special lens and film that could freeze and record every activity going on throughout the entire economy at one particular instant, revealing the elaborate legal and economic network of interconnecting cooperative agreements and contracts. The mutual interdependence of every one of us may be demonstrated by all three approaches. To explain more fully, let us examine each in turn.

Free Market Economics: A Syllabus