The Division of Labor

The joy of free exchange, and the law of comparative advantage, are explained quite well by Jeffrey Tucker.

Many seem to think of economics and capitalism as sterile or even ugly.  This article helps get at the real beauty of free exchange and capitalism, which I would boil down to the following:

  1. Every exchange between free and uncoerced people increases the well-being of both parties (by each individual's definition of their own well-being).  It has to or there would be no transaction. 
  2. Point #1 can and does occur even when one party to the transaction has no absolute advantage in any type of labor or production over the other party
  • Patrick

    This statement is as simplistic as most conservative assessments of Capitalism are. There are economic transactions which happen in a Capitalist system which are NOT to the advantage of both parties. They are transactions which one party has no ability to choose. If I allow my house to fall into ruin and it affects your property's value, there is an implicit transaction which occurs where I get what I want and you get screwed. But Libertarians and Conservatives say "that's not a real transaction". Well what the hell is it then? No money changes hands, but one person gets value and affects the value received by another person.

    This is one of those situations where pro-Capitalists just love to simplify things to a base and meaningless level. They focus on the bark on the tree, nevermind the forest. Regulated Capitalism (which is what we have unless we let conservatives be in charge) accounts for this implicit transaction. Free-market Capitalism does not account for this transaction, which is why chemical companies can make billions of dollars while dumping their poisons on the people around their plants.

  • Rob

    1) This is why pigs don't make good neighbors, but we years ago stopped judging people, so...

    2) If the chemical companies are getting a free ride, dumping their waste, the Environmental Defense Fund, WWF and the Sierra Club can sue them. There, now even the useless lawyers get paid that way!

    Rand is much the same in her descriptions, but she takes nigh onto forever to say it.

    The key here is to be very careful about letting the transaction become abstracted.

    So, this procapitalist is waiting for a real rebuttal of the article rather than an ad hominem reframing of the question.

    Only Socialism works in the abstract (and that is the only place it works).

  • http://www.tinyvital.com/blog John Moore

    There are two adjustments I can think of to the assertion:

    1) Modern economics knows that many transactions are not made rationally. This defeats the underlying premise of #1.

    2) As was pointed out by another commenter, externalities from the transaction may make third parties poorer.

    OTOH, there don't seem to be good alternatives except in the more egregious cases. Having the government handle externalities in all cases simply hands the decision making authority to the government, which ( see Moore's Laws of Bureaucracy ) will usually make things even worse.

  • Mark

    However, even in an "irrational" transaction both parties subjective welfare is improved. That is the exact point in Postulate #1.

  • Nigel Ray

    I've made lots of purchases over the years that turned out to be bad ideas. Point #1 doesn't reflect that properly, it seems to me. Not that I would want the government to step in and keep me from wasting my money; I'm just saying that by my definition of my own well-being, it turned out I had lost rather than gained.