I want to share with the reader a simple rule that may help better understand how various economic events actually look and what they consist of. I call this the “rule of the pair,” which can be formulated as follows: “in any exchange there are two sides.” Why is this important? Because most of the information we receive implicitly assumes that only one side is acting. Even worse, economics students are taught one economic theory in their junior years, and in their senior years—a directly opposite one. And in this “opposite” theory, economics turns into some kind of zen with clapping of one hand. Economists, after finishing university and becoming experts, become disseminators of this Zen wisdom among the general public. The trouble is that this wisdom is completely far from reality.
The key economic action is voluntary exchange. Of course, there may exist completely autarkic economies, whose owners do everything necessary with their own hands, but there are probably only a few of them. Exchange occurs because people value various goods differently. That is, I will exchange one good for another only when I value the other good more than the one I own. Similar conditions must be met for the second participant of the exchange. Moreover, “value” is a purely subjective concept.
In fact, our civilization is based on this process. Its achievements exist because we all exchange according to the principle “I acquire more than I give,” and this is possible because we are different and value different goods differently. The story about the Canadian who traded a paperclip for a house in a year is a vivid illustration of how wealth grows as a result of exchange.
So, let us note that exchange always has two sides. And both sides increase their wealth when they exchange.
Now let us look at the most ordinary reports. For example, “television manufacturer—company A—received income of 10,000 hryvnias for the last month.” This is typical information from the category of “clapping with one hand.” In fact, this information should be supplemented with: “during the month, buyers of company A’s televisions received wealth greater than 10,000 hryvnias.” Now the picture becomes complete. I am by no means calling on journalists to present news in exactly this form; I am only saying that it is useful for the reader to know what the full picture looks like. Why? Because an incomplete picture creates an illusory world, sometimes directly opposite to reality. However, readers perceive this illusory world as real. And already as citizens or, worse yet, as voters, they may act as people trying to implement these illusions in life.
Look. In the report “television manufacturer—company A—received monthly income of 10,000 hryvnias,” only company A is acting. Its income generally seems to fall from the sky of its own accord and therefore can always be called into question. That is, a message like “company A paid income tax of 10,000 hryvnias” is perceived in such a world as quite normal. Well, here you have your income, you need to share, and all that sort of thing. Now let us look at what we get in the real world, in which there are buyers of company A, whose wealth increased by more than 10,000 hryvnias because they preferred its televisions to that amount of money. It somehow does not look good. It turns out that company A is being punished for increasing the wealth of these people.
The rule of the pair is especially helpful in understanding the activity of the state. After all, there is no voluntary exchange in it at all. It gives nothing to those from whom it takes, and takes nothing from those to whom it gives. There is no exchange at all here; there is only, perhaps, an article of the criminal code.