ONCE MORE ON SMITHIAN BARGAINING BY A TOP OF CLASS DEBATER
Dr Madsen Pirie of the Adam Smith Institute posts (11 February) on the ASI Blog HERE one of his high-value - and always brief - gems on economics. He is posting a series of his statements exposing everyday wisdom that we read, often from senior scholars too, similar to what Lost Legacy counters on its Blog every week. In the case I quote below, Pirie exposes the nonsense in a few sentences, whereas I normally can take a page or more when quoting Adam Smith’s clear refutation of the myths on this particular subject. So it is a pleasure to show a professional debater at work:
“Economic Nonsense: 3 [by Dr Madsen Pirie:]
“There has to be a winner in every bargain”
“This is not true, and is based on the false zero sum game fallacy. The assumption behind it is that value is fixed, so that if someone gains more of it, someone else will obtain less. People commonly ask who gets the best of a bargain, wrongly assuming that one party gains at the expense of the other.
In fact, value is not a fixed property of objects, but something in the mind of those who think about them. People are different and they value things differently; and value is not fixed or in limited supply. When a voluntary exchange takes place it is because each party puts greater value on what the other party has than they put upon what they are ready to trade for it. When the trade takes place, each party acquires something they value more than what they already had. Both gain in value; this is how wealth is created.
It is not a case of one party winning and the other losing. Rather is it a win-win situation in which both parties have added value to their lives.
Just as both usually gain in a voluntary bargain between people, so do both sides usually gain in a freely-entered exchange between nations. People in one country trade what they have in return for what they value more from the other country. Both become wealthier as a result. It is trade and exchange that makes countries wealthier, not trying to accumulate precious metals or plundering wealth from others. When countries abandoned the idea that they could grow rich at the expense of others, the world’s wealth began to grow dramatically. Trade has made everyone winners.”
[Follow the Link above and read Dr Pirie’s atriculate exposition on a range of economic topics on the Adam Smith Institue Blog]
Disclosure: I am a Fellow of the ASI.