Tuesday, October 8, 2013

To Work, Exchange MUST Be Voluntary

"And so, in one case," says he, "I once got a flogging for not deciding correctly.  The case was like this:  a big boy with a little tunic, finding a little boy with a big tunic on him, took it off him and put his own tunic on him, while he himself put on the larger one.  So when I tried their case, I decided that it was better for them both that each should keep the tunic that fitted him.  And thereupon the master flogged me, saying that when I was a judge of a good fit, I should do as I had done.  But when it was my duty to decide whose tunic it was, I had this question to consider - whose title was the rightful one; whether it was right that he who took it away by force should keep it, or that he who made it for himself, or had bought it, should own it."

Xenophon, Cryopaedia, Book 1, Chapter 3
Greek Historian (430 - 354 BC)

Xenophon wrote many books, and this one about the raising of King Cyrus.  His books have influenced economists for millenia since, from Adam Smith to Karl Marx, and the conqueror Alexander the Great used one of his books as a field guide for his travels.

His book Oeconomicus still influences economic thought as regards the specialization and division of labor even today.

The concept he developed above has been called exchange value by economists.  Xenophon said that for exchange to work it must be a voluntary exchange, or there is no value in the exchange.

Cyrus, as the judge above, was castigated for not considering the subjective, voluntary and moral nature of the exchange between the two boys.

Although his tunic did not fit him, the small boy may have been wearing his grandfather's tunic.  Or his mother may have made it from a special cloth produced by the family, and he intended to grow into it.  As such it had special, yet subjective, value to him, value never to be appreciated by the larger boy.

While it may have been a better circumstance for each boy to wear the tunic that fitted him best, according to the law, it was not a moral circumstance as rightful title was not considered.  And forcing the exchange between the two was immoral.

This brings economics to the consideration of private property rights and natural law.  Each of these things must be considered for markets to work.  If one has no ownership of property there is no self interest, no natural market can be created, and no exchange value can be assessed.  The subjective, personal value of things must be considered for a market to efficiently distribute goods and services.  Such is the nature of free enterprise.

When a third party enters the marketplace with force, or attempts to alter it with "the law of the land," for whatever the political aim, distribution of any good or service is haphazard at best, and the market will collapse or worse.  When force is introduced, the factors of production (land, labor, capital and risk-taking entrepreneurship) cannot effectively create efficiency, and undue costs will influence product distribution so negatively that the natural market cannot operate, and will fail.

Xenophon would argue that with such market interruption voluntary exchange has not occurred, and none of the parties is suited, and that rightful title no longer exists, and market value is lessened or nil.

Consider that the next time you hear that this or that gubment program is failing, or going broke, or more expensive than advertised, or its "intentions" are good but results are inadequate.  And pick your program - those gubment programs that have existed and those that are just getting started.

Private property and natural law trump political aims every time.
And the marketplace is the only moral place to be.

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