Voluntary Exchange v. Coerced Exchange

Voluntary exchange is a very simple concept. Despite its simplicity, it is the most conclusive evidence against all forms of coerced exchange.

Exchange is not an equality of values; it is an inequality of values

“Where there is action, there is change. Action is a lever of change.” – L. Mises

From Aristotle to Marx, it was thought that exchange implied equality between two items exchanged: “exchange cannot exist without equality, and equality cannot exist without commensurability” (Aristotle). But exchange implies an inequality of values between parties. Each party values the other item to be received more than the item to be given up. This means that all exchange is beneficial. If this wasn’t true, we wouldn’t exchange at all as we would be acting without improving our condition.

All action then is the pursuit of a higher condition of living. It is not limited to the economic sphere. By choosing to make an exchange, I choose to give something up in order to receive something that I value more, improving my condition. If I abstain from an exchange, I do not see myself better off giving up what I possess.

For example, suppose I possess A (hat), and you possess B (coat):

I value B > A

You value A > B

We would both better off if we exchanged, so we choose to exchange. You now possess something of greater utility than before, and I as well possess something of greater utility than before. When exchange is voluntary like this, the situation is always win-win for both parties.

Voluntary exchange will always maximize utility

The result of this inequality of value means that voluntary exchange maximizes our possible utility derived from goods we possess. We search the market for possible exchanges until we find an exchange that provides us the greatest benefit.

Again, suppose I have A and only A in my possession (the hat). I can make the possible following exchanges:

B = Coat

C = Pants

D = Lamp

E = Meal

Suppose I value each item as such: C > B > E > A > D

Because I only have one possible item to exchange, the hat, which exchange will afford me the greatest utility? It goes without saying that I will not exchange my hat for a lamp because I value my hat > lamp. Because I value pants > coat > meal, I will then exchange my hat for the pants.

When left to make a voluntary decision to make an exchange, then, every exchange maximizes my possible utility because I will always choose the item that will grant me the greatest increase in utility. We exchange in a descending order of utility derived from all potential exchanges.

Of course, not all potential exchanges will occur.

Suppose I have A, the hat, but my ranking of goods is something along these lines:

A > C > B > E > D

There is nothing I value more than my hat, so I will hang on to my hat.

All voluntary exchanges then will benefit both parties; it is a two-way contract, and the contract can only be executed if the good given up by each party is valued less by each party than the good received. If there’s no exchange, there is no gain, but there’s no loss to either party. Both parties simply hold on to their possessions until a favorable exchange can be found, which will then maximize the utilities of both parties. This simple concept alone subverts any suggestion of coerced exchange.

Violent intervention and coerced exchange

“All cases of intervention supply one set of men with gains at the expense of another set” – M. Rothbard

Once we establish that all voluntary exchange leaves both parties better off and maximizes the utilities of both parties, then anything that interrupts this simple concept leaves one or both parties in a worse position than what could be obtained in the absence of interruption.

Whenever the initiation of forced is used in exchange it can only mean one thing: 1 or more of the subjects are forced to make an exchange that they would otherwise not have made in the absence of force. From what we already know, this necessarily means that all coercive exchange must injure 1 or more parties. As mentioned before, if I abstain from exchange, it means that I do not value what I receive more than what I have to give up.

With intervention, the value judgment of someone else, usually the government, is supplanted for my own value judgment, and forces me to make an exchange I voluntarily would not make. To borrow a term from comrade Marx, all intervention is exploitation, a hegemonic relationship involving the threat of physical violence. Voluntary exchange brings harmony; violent intervention brings conflict.

Binary and Triangular Intervention

Binary intervention occurs when the intervener forces a subject to exchange. A common example of this type of intervention would be taxes for public schooling. In this example, we are forced to exchange with the government (pay taxes) in order to receive “services” that we must accept from them. The government may be better off, but we as taxpayers are not. They tell us we must accept their exchange, regardless of our considerations, or go to gulag.

Suppose I have A, which is now $10, and that I can make the possible following exchanges:

B = Coat

C = Pants

D = Lamp

E = Levy for roads (libertarians should appreciate this one)

Suppose I still value each item as such: C > B > E > A > D

If left freely to exchange my $10, I would buy pants and maximize my utility. But in the case of binary intervention, I am forced to make an exchange with the government. I am impelled by taxation, under the threat of physical violence, to give my $10 up to the government so it can spend it on roads, even though I value roads less than other possible things I could have obtained.

Rather than obtaining the greatest benefit from executing a voluntary exchange according to my own value judgment, the value judgment of government has replaced my own. Because the exchange is no longer voluntary, I can only suffer and receive a lesser benefit than what I could have otherwise obtained. I have been forced to exchange my $10 for E, even though I think C > B > E.

Binary intervention, like all intervention, can never increase my utility vs. a voluntary exchange. This isn’t to say I can’t benefit from this coerced exchange; I can. But I benefit less because there are other things I value more than what I am first forced to buy. For example, I may value roads for $5, but not $10. Hence, paying $10 for something worth only $5 to me provides me with a loss because I am robbed of the opportunity to spend my $10 on something I value more $10, such as the pants or a coat.

Triangular intervention occurs when the intervener forces 2 subjects to exchange with each other. Common examples of this type would be car insurance and now health insurance laws that make them both mandatory. The case of triangular intervention is the same, except it is not the government that benefits, but rather a privileged 3rd-party under the government’s protection, with whom we are forced to exchanged.

A return to reason

“Men cannot be made happy against their will” – L. Mises

Austrian economics is resultant of this axiom of voluntary exchange. From what has been logically deduced, we can establish that all voluntary exchange will maximize every individual’s utility while any intervention can only lessen the benefit we derive from exchange. Individuals should be protected from (not forced into) expropriation and confiscation, free to make their own exchanges, where no one is exploited at the expense of another.



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