So, a person decides to do something—say, urgently wash himself because his back itches. But there is no soap. And there is an awl. He spots a guy who has soap. That guy, conversely, urgently needs an awl. An exchange occurs, and both walk away satisfied.
So, what do we see? First—there is no such thing as objective value. All value exists only in the head. All value is connected with the plans we build and the “images of ourselves in the future.” If the guy with soap immediately offers to exchange again for the awl, he will most likely be sent packing. It may happen that even with an acute need to wash your back, you will not exchange your awl for soap, because you have other plans for it.
Usually, when you raise these points, conversation partners hastily say: “Yes, yes, that’s understandable.” But then, when you read what they write, you see they understood nothing. They may, for instance, quite sincerely be indignant that some factory was “sold for a song while its value was billions of hryvnias.” There you go. For whom was this value billions of hryvnias, and why? I can understand such indignation only if there were other offers—more expensive ones—and officials dumped it cheap, to their own benefit. But if everything was honest, then what is the question?
Simple things are understood with the greatest difficulty. By the way, not only laypeople and journalists suffer from this, but economists as well. Economists of the “classical” school could not understand why gold is more expensive than iron, because iron is more useful. Jevons, Walras, and Menger in different countries (but, interestingly, almost at the same time) solved this problem. This was back in the 19th century, yet to this day many economists, not to mention journalists, act as if iron “should be” more expensive than gold.
The second point is that an exchange occurs only when it is unequal for both sides. They constantly stuff our heads with “equal exchange,” and public opinion says that if you bought apples at 10 hryvnias per kilogram, then the price of these apples equals 10 hryvnias (that is, this is the same thing). All of this is not true. An exchange happens when each side values what it is parting with lower than what it receives. The exchange of an awl for soap is not an exchange of “equal” things. For one side, the awl is worth more than soap; for the other, the opposite.
Wandering around the bazaar and checking prices on apples, you don’t buy everything in sight. You compare the apples with the sum of money you are being asked to part with. In your opinion, these apples do not cost 10 hryvnias, but these ones very much do. Other people may have a completely different opinion on this matter.
The legend according to which the Indians exchanged the island of Manhattan for beads quite harshly judges the Europeans who pulled off this deal. It’s a pity no one asked the Indians’ opinion. I think they left the deal site, quietly giggling and pointing to their heads.
The third point is that exchange always means refusal of one thing in favor of another. By the way, this is also not easily understood. That guy who bought those rotten apples for 10 hryvnias refused 10 hryvnias in their favor. I refused the opportunity to earn money for the opportunity to lounge on the sofa, and so on.
The fourth point is that exchanges save time. More precisely, they create time. Instead of doing everything ourselves, we can exchange some things for others. By the word “things,” such abstractions as culture or education are also understood. Exchange gives rise to division of labor—I can do what I do better than others, receiving in exchange what I cannot make. This point is usually surprisingly well understood and does not cause objections.
And finally, fifth, the most important and most difficult to understand. Exchange gives rise to that very “wealth of nations.” The person who received the awl and the person who received the soap improve their condition—they receive what they were striving for. After that they can strive for something else. This is wealth itself. Society as a whole, in the person of these two individuals, has become richer. The resources of society in the form of an awl and soap are now used in the best possible way. The most interesting thing is that the category of “richer than before” also includes me, sprawled on the sofa instead of working. As long as I value my rest higher than the sum I could receive for work, I will not move from the spot.
We made the journey from stone axes to computers only because one person could not scratch his back for the life of him, and another lost his awl. And both undertook some actions to improve their condition. The conclusion that voluntary exchange, based on subjective understanding of value, created the modern world with all its science, technology, and production, hardly fits in our heads, but it is so.
In conclusion, let us note that exchange does not mean the absence of errors. The guy with the awl may eventually discover that what he actually needed was pliers. In that case, wealth will have to wait. However, in any case, exchange increases wealth only when it is a voluntary refusal of some goods in favor of others. Let us try to remember this conclusion—we will need it again.
The Origin of Wealth, or, which is the same, the Causes of Poverty
“According to NBU estimates, GDP growth will be ensured primarily by an increase in world demand. Domestic demand will remain sufficiently low as a result of weak lending activity. In 2011, a slight slowdown in economic growth is expected (by 3.7%).”
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When I read such texts, despair overtakes me. I think that if primitive people had had economists, experts, and journalists, we would still be walking around in animal skins.