Montreal, July 23, 2006 No 185




Gennady Stolyarov II is a science fiction novelist and philosophical essayist, and is Editor-in-Chief of The Rational Argumentator. He lives in Chicago.




by Gennady Stolyarov II


          Two individuals go to market; person A owns good X, and person B owns good Y. What needs to happen for A and B to voluntarily exchange X and Y?

          If the exchange takes place, it must be true that certain prerequisites have been met. A must value Y more than he values X; otherwise, he would not have given up the greater satisfaction conferred by X for a lesser one conferred by Y. B, on the other hand, must value X more than he values Y; otherwise, he would not have been willing to give up Y for X.


          What, then, is the inevitable result of the exchange? A leaves the market with Y, which he values more than he valued the X he used to have. B leaves the market with X, which he values more than he valued the Y he used to have. Both people now have goods that satisfy them more than the goods they gave to the other person. Both people are benefited by the exchange. In that sense, any trade provided that no party is coerced is mutually beneficial to all those involved.

Coercion, sacrifice, trade

          The entirety of human interactions can be divided into three fundamental categories. The first category coercion occurs when A takes Y from B without giving B anything in return. As a result, A has both X and Y; A seems to have gained, but B has certainly lost. The second category sacrifice occurs when A gives X away to B without asking or expecting anything in return. As a result, B now has both X and Y; B seems to have gained, but A has certainly lost. The third category trade is the only one in which neither party loses. Both A and B leave the exchange more satisfied than they entered it.

          Of these three modes of human interaction, only trade provides an incentive for mutual peace, harmony, and cooperation.

          With coercion be it murder, overt theft, government expropriation, or regulation the expropriator benefits only in the short term. He might temporarily be better off materially, but he arouses resentment on the part of the expropriated. The expropriated would have little incentive to help or trade with the expropriator in the future. Furthermore, under a system where "might makes right," the expropriated will eagerly turn the tables on the expropriator whenever he gets the opportunity. Because the expropriator does not recognize other people's inalienable rights to their property, other people do not have any reason to recognize the expropriator's right to his property. In a society where coercion is accepted as the guiding premise, there inevitably results a war of everybody against everybody.

          With sacrifice even if it is entirely voluntary there develops an entitlement mentality and two classes of people: the productive servants and the idle masters. Those who sacrifice by definition give the fruits of their productivity to those who did not produce them expecting nothing in exchange. Thus, the people who did not work and earn are in an automatically better position than the people who did; they are the ones who get the goods. In a society guided by the premise of sacrifice, there is no incentive to work; there is only an incentive to leech off those who do. The idlers begin to expect charity as a matter of right not as payment for individual merits and future expectations of the beneficiary. They begin to view the producers as nothing but slaves to serve their whims and eventually they begin to coercively enslave the producers. Both coercion and sacrifice ultimately lead to the same result: those who do not produce receive the goods and subject the producers to their whims. Many historical societies have been based on a mix of coercion and sacrifice; all of them inevitably collapsed or are presently bound for collapse.

          Trade is a wonderful mechanism for avoiding social conflict and enabling individuals to live in peace. Trade is the only mode of human interaction which actually encourages productivity by guaranteeing each individual either the fruits of his labor or something better for which he can exchange them. Every individual has a reason to produce for he will have at least what he produced himself to rely on, knowing that nobody will expropriate it from him. Trade does not require all people to agree on their valuations of particular goods. Quite the contrary, trade requires different valuations from different individuals. Yet these different valuations of the same goods result in an exchange from which all parties benefit. What better way is there to bring different people to cooperate for mutually advantageous goals?

"Trade is a wonderful mechanism for avoiding social conflict and enabling individuals to live in peace. Trade is the only mode of human interaction which actually encourages productivity by guaranteeing each individual either the fruits of his labor or something better for which he can exchange them."

          Trade especially in the long term is more beneficial than coercion, for voluntary trade can continue to occur among the same individuals indefinitely. Every act of coercion is expensive; inflicting force requires energy and often money. Furthermore, the victim could fight back every time! Under voluntary trade, such expenses are not required to convince the other person to give one a good. One's willingness to give the other one's own good in return is sufficient persuasion along with advertising and discussion in some cases. Only a masochist wants to be coerced, but the overwhelming majority of people will want to trade if given the chance. A society that accepts trade as its guiding premise follows the path of least resistance in obtaining the greatest benefits.

An asset in the capitalist system

          Aside from encouraging productivity, trade is in itself productive. Let us presume that George owns a telescope but does not know how to use it; he is a professional musician, but does not own any instruments. John is an astronomer who lacks a telescope but owns a guitar he cannot play. If George and John make a trade, each of them will raise their productivity from nothing to much more. John will receive George's telescope and be able to make astronomical observations. George with his new guitar will create and perform music. John, George, and everyone else are better off as a result of this trade which increases the traders' productivity and the goods and services available to their customers.

          Trade is productive because it reallocates resources to superior uses. If A values Y more than he values X, then the superior use for Y will be in A's possession, not in B's. But increased productivity can only truly occur if B also gets a good he values more than what he gives up. If A merely stole Y from B, we would not be able to call the act productive for B's productivity and incentives to produce would have been diminished. Only when both parties in the transaction benefit can the transaction be productive; of the three modes of human interaction, only trade meets this criterion.

          The capitalist system is based on trade. Every individual owns property which he either homesteaded from the state of nature or obtained through voluntary exchanges with others. He is then free to either use this property himself or to exchange it for goods he considers superior. Some individuals will inevitably make mistakes, and their expectations will mislead them to make trades that in retrospect they will recognize were harmful. But this is an asset not a flaw in the capitalist system. Individuals' minds are not static; they learn. An individual who has harbored false expectations and acted on them to his detriment will likely be more careful in the future. As he accumulates knowledge and skills, he will make increasingly better decisions. If he refuses to change and keeps failing, nobody will sacrifice to bail him out. Those who make decisions with objectively beneficial consequences will prosper, while those who make decisions objectively detrimental to themselves will suffer. People are free to learn from their good and bad decisions and wisely select the future trades they will participate in.

          No system but capitalism can guarantee individuals these incentives for self-improvement. Both coercive systems and systems based on self-sacrifice would penalize them for producing and reward them for idleness, violence, and vice. Under capitalism, however, the number, usefulness, and objective benefits of exchanges will continually increase over time.

          Trade is mutually beneficial to all parties involved. It fulfills people's expectations of benefits to be gained and adjusts these expectations over time to fit the objective reality. Trade encourages productivity, optimally reallocates resources, and cultivates prudent, virtuous, and peaceful habits. It is an integral component to the only moral social, political, and economic system capitalism which recognizes each person's right to the ownership of his property and the moral virtue of his quest to promote and maximize the quality of his life.