Re: Why Bush Loves West Wing

Dear [Name],

As to your discussion of the market, I think it is a very important and very interesting issue. My definition of market, as the “voluntary exchange of ideas or things” could very well be a barter trade. But it is still a market in the definition I am using. Let’s not discuss who is using the correct definition, it is not very interesting. Instead, let’s discuss what we mean with the definitions we use.
      As you correctly note, barter trade is inoffensive and is ethical. Someone believing in natural rights (or any other kind too, I guess) would say barter trade does not violate rights and is thus ethical. I simply state that since barter trade is in full voluntary and does not include any kind of coercive measures it is ethical and just. I guess we agree on this.
      Now, why do I consider barter trade being a market? Imagine two people, let’s say a baker and a fisherman, get together every now and voluntarily exchange things. The baker obviously values fish higher than the bread he needs to give up to get it, and the fisherman obviously values the bread higher than the fish he “pays” for it. It is very simple, if either one of them would believe it was not just - and that they were not better (or as good) off as before - they would not voluntarily agree to the exchange. This is how I define the market - voluntary exchanges for one’s own benefit, which means every exchange is for all partaking actors’ benefit.
      Imagine there are more people in this society, for instance a wagon maker. Now, this is going to get troublesome since one wagon takes a lot of time and skill to produce, and the wagon maker cannot produce more than a few wagons each year. And, since the baker and fisherman know they cannot make a wagon unless not baking or fishing for a long while, they will agree to exchange a large quantity of bread or fish for a wagon (if they need it). Of course, working for a couple of months making a wagon, and then getting perhaps one thousand loaves of bread or many hundreds of fish is not an attractive exchange. Bread gets bad after a while, and fish will rot.
      It is the same the other way around too: bread and fish will be destroyed as the baker or fisherman is trying to save enough bread or fish to buy a wagon. So the wagon-maker would have a wagon which he wishes to exchange for fish or bread, and the baker and fisherman would have their bread and fish while being interested in trading it for a wagon. But the exchange would never happen, since bread and fish easily goes bad when saved. So what would happen in this little society?
      It is obvious the three people would come to an agreement since it is in their mutual interest to make this exchange. Maybe they agree on paying the wagon maker a couple of loaves of bread or some fish every day for a couple of months, and will in return get the wagon when it is finished. This means they have avoided the problem with bread or fish getting bad, and they all benefit from this scheme since nobody needs to keep a lot of bread/fish while awaiting the right quantity. With this solution, they have through voluntary action invented the contract, since they have an agreement for exchange even the exchange is not immediate thereby causing an ongoing interdependence throughout the time of the contract.
      Also, they have invented a financial instrument since there is value in the contract. The value arises simply because the baker and fisherman offer their products before they get anything in return (which is the basis for this contract), and will as time goes by have a bigger claim to the property (wagon) of the wagon maker. And, of course, the wagon maker will be in debt as the baker and fisherman pays him bread and fish while he has not yet given them anything. The difference is the current value of the contract, since - in this case - the baker and fisherman relies on the contract to get value in the future.
      It is still barter, so there is no conflict and it is not offensive; it is still as ethical as we agree barter is. We are still relying totally on voluntary exchange for the mutual benefit of whoever is involved (in this case: the baker, the fisherman, and the wagon maker).
      Now, maybe there is a storm and the fisherman’s boat is thrown ashore and sinks to the bottom of the sea. The fisherman cannot get any more fish (or he cannot get the quantity he expected) and would need to get a new boat. According to the contract he will have to continue paying a number of fish every day to the wagon maker even though the wagon maker in real terms is in debt to the fisherman. What can he do?
      He can of course go to the wagon maker and ask him to release him from his obligation stated in the contract. Maybe the wagon maker will agree to this, but it would mean he has to pay the fisherman back the number of fish he has already paid. But the wagon maker has probably already started working on the fisherman’s wagon, which means he has really “paid” a part of the value of the contract even though it is not yet realized for the fisherman. Maybe he cannot afford to let the fisherman get his fish back because he ate them all and cannot trade for new ones. Now we have a problem.
      Either the wagon maker could give the fisherman whatever he has achieved in making the wagon, perhaps a wheel and a blueprint (which are not really of value to the fisherman, who cannot continue the work), or he can simply demand the fisherman continues giving him fish as was already agreed. Or, he could offer to make yet another agreement saying perhaps that the contract is off and that the fisherman will have a few fish back, but that he will keep 10 fish because he now cannot get food the following days. Since he expected to get fish every day while working on the wagon he now demands some of his costs are covered by the fisherman - this is not hard to imagine.
      As we can see, the contract is here a financial instrument since there is value in the expected completion of whatever is stated in the contract. The agreement in itself means a promise to make a future payment, thus the contract is simply an agreement to make such an exchange as we have covered above - but it is not immediate.
      The contract is to some extent also to be considered as speculation, since the fisherman promises to give the wagon maker a number of fish every day - but while signing the contract he does not have the fish. He simply expects to have the fish when he is supposed to deliver it to the wagon maker. He believes he will be able to catch fish every day to give to the wagon maker, so he takes this chance.
      The wagon maker and the fisherman most likely think this is quite troublesome, exchanging fish for wagons. The difference in value is too great. Of course, the value they identify in fish and wagons is totally subject to their wants and desires. There is no real (or rather: objective) value in the wagon nor in the fish. To the wagon maker the wagon is worth approximately the time and effort it takes him to produce the wagon, to the fisherman the wagon is worth as much as it lightens his burden or what he expects to gain in whatever he would like to use it for. The same is true with the fish: the fisherman values the fish to the time and effort he puts in catching the fish, while the wagon maker values the fish according to his needs or desires.
      The values of the things is thus not objective, it is subjective and individual. What happens when these two people get together to exchange a wagon for a number of fish is the establishment of market value of both the fish and the wagon. The market value in this case is simply whatever is agreed between seller and buyer, e.g. a wagon is worth 1,000 fish and a fish is worth 1/1,000 wagon.
      Since the wagon maker also makes a deal with the baker, there is also a market value of bread (relative to wagons) established. Perhaps the wagon is sold for 1,500 loaves of bread (the value of one wagon) meaning the bread is valued to 1/1,500 wagon. So we have established the market value of wagons, fish and bread. This does not mean the value is always the same, the market value is set only for the instance in which the single agreement is made. In this instance fish seems to have the value of 1.5 loaves of bread, but we do not know this until the baker and fisherman agree to exchange their products. (Simple Austrian economics, very rational and very intelligible.) The so-called “market value” the State uses for taxation and the multitude of government programs with subsidies or whatever is simply a scam.
      The same is true if there are multiple actors in the marketplace (the market is simply the abstraction of all voluntary exchanges). If there are 1,000 bakers, 1,000 fisherman, and 1,000 wagon makers the market value is set exactly the same - in each individual transaction or exchange. But what is now added is the choice of whom to make the exchange with. If there are two fishermen in our example the value of fish would probably be lower since there are more fish available in exchange for roughly the same number of loaves of bread or wagons. Competition is introduced.
      This does not mean the fishermen will do anything to get as many fish as possible in order to buy all wagons and bread on the market. No, every exchange is still the result of voluntary action from both the “seller” and the “buyer,” thus the baker will exchange his bread for fish with the fisherman of his choice. Of course, the number of fish he can get is an important factor, but so is how the baker feels about the fisherman and his products, trust, friendship, politeness etc. Maybe the baker prefers fish caught using float and not nets, or he wishes the fish to be killed painlessly and treated in a good way, or he feels sorry for a poorer fisherman, or whatever. All these factors are of course important, since the choice to trade bread is only the baker’s.
      As a matter of fact, since the baker has the option of with whom to exchange, the fishermen will have to outbid each other - the one offering the best deal for the baker (on the baker’s terms) will probably get the bread thus selling his fish. And of course, price is an important factor, but it is not at all the only one. The baker chooses which factors he wishes to consider, and chooses freely with whom to trade. So competition between the fishermen is for the trust of the baker, on the baker’s terms. In competition, the customer is king and the sellers will have to accept his terms.
      This is of course not true in today’s society, where the state has a large number of rules on how to make exchanges, how to produce things, how to tell people about them (advertising), how to offer them, and a lot of other things. This of course upsets the “market,” since it is no longer up to the fishermen to agree to the baker’s terms, and the baker’s terms are no longer important for the exchange - the laws are.
      Imagine another thing in our original example with one baker, one fisherman and one wagon maker: one day the fisherman finds a couple of very beautiful pearls in some of the clams he caught while fishing. He thinks they are very beautiful and puts them in his pockets, anxious to show them to people. Everybody agrees that these pearls are really something special, and people imagine a number of different uses for such beauties. Thus, there is a demand for the pearls. It is not created in terms of producing a demand not before existing in the minds of people, but the new information (that such pearls exist) brings new thoughts to people and makes them remake their priority hierarchies. Hence, some people value the pearls very highly and some don’t. It is a newly identified demand, but it is based solely on voluntary preferences. The value of pearls is exactly as with bread, fish, and wagons - it is subjective. What is objective is that there is a value attached to the pearls - all people seem to agree on this.
      The fisherman notices there are a lot of people wanting such pearls, and thus that there is a market value. He does not know what the market value is (since it has to be established in each individual exchange) but he is sure there is a value. Thus, he tries offering the baker pearls instead of fish in exchange for bread. The baker accepts according to what we established above - he places a higher value in these pearls than in the bread exchanged for them, and the fisherman vice versa. So an exchange takes place and a market value is established for that single exchange.
      Since the fisherman exchanged only half of his pearls for bread, now both the baker and the fisherman have pearls. The fisherman makes the same offer to the wagon maker, offering pearls instead of fish as payment for the wagon. The wagon maker accepts since he thinks these pearls are very rare and beautiful. His wife would love them, and since he has heard the fisherman has already gotten bread for the pearls they surely have a market value.
      The pearls have hence become a general medium of exchange, since people agree to trade using pearls as bearers of value instead of the direct exchange of products. Any medium of exchange such as this is money, so in our small society everybody is suddenly using money! Why? Because everybody wants to own the pearls (they all place a certain value in owning the pearls), and they choose to use the pearls rather than fish, bread, and wagons when exchanging value for products.
      Thus, the next time the wagon maker visits the baker to make an exchange for bread he does not have to go through the trouble of trying to sell the baker a wagon and settling a contract with part-payments. Instead, he brings the pearls he was paid by the fisherman, and pays the number of pearls the baker and wagon maker agree the bread is worth.
      The reason they all start using the pearls instead of direct barter is that they all consider them valuable and it is much easier for all of them to trade products for pearls instead of products for products. They are easier to store and handle, and they are scarce - one cannot find large numbers of pearls everywhere. Finding pearls takes time and energy, and thus there is a cost for getting more pearls (money) into the marketplace.
      Now the fisherman can simply sell fish to the others and save the few pearls he does not need to use directly to get bread and whatever he needs. So he starts to save, which is the main prerequisite for investments. What is now spontaneously invented is a money-based economy with profits - the fisherman is saving a little money from each exchange.
      The profits are not coercive or violate the rights of anyone. Any exchanges are still the result of voluntary action between the buyer and seller (they are both better off!), thus a new market price is established every time people agree to make an exchange. If the fisherman can save a lot of money it means simply that his costs are far less than what people are prepared to pay for his fish (meaning they place a higher value in the fish than in the pearls they give up for it). And because of this others can easily start fishing in order to get a piece of these profits. There is a rational incentive in catching fish if the fisherman is making profits. So profits cause competition, which in turn cuts profits. The result of this spontaneous balance-making is simply cheaper (and better) products for the consumers.
      Anyway, when the fisherman has saved enough money (pearls) he goes to another town to buy a new boat or a net in order to catch more fish so that he can save more money and perhaps buy a house or a more comfortable bed for his wife. This way he can, through saving and investing his profits, increase the supply of fish in the market and thereby supplying more food to hungry people. Since there is more fish available (in the market) people are willing to pay less. If the fisherman tries to charge the same price for the fish he will only find that people will not be able to buy all the fish and it will rot while awaiting buyers. Also, the greater profits per sold fish will create an incentive for people to compete with him.
      Thus, the market price for fish goes down. The fisherman can probably still save a little money from his business, since people are better off paying less for the fish and there is a small barrier for competitors to enter the market. Buying a boat (or net) is costly, and this produces a possibility for modest profits. Of course, the fisherman can set whatever price he wishes, but setting a too high price will only mean less people will be able to buy the fish.
      Also, it creates a greater incentive for other people to get a boat/net and compete. As we have seen above they would be able to make an equal deal with a boat maker as the baker and fisherman did before with the wagon maker. If there is a big profit in catching and selling fish there is enough for a competitor to cover the costs of such an agreement with the boat maker. So the price of fish will go down either through the fisherman recognizing this fact or through the “threat” of a new actor (competitor) in the market. The threat is of course only directed to the “unnatural” profits of the fisherman, all others are better off with such competition.
      Another great thing with this is that there may be people in such a society who have been successful fishermen for many years through which they could have saved some money (pearls). Either they can use the money for covering daily expenses (food, clothes etc) or they can boost the balance-making in the market, thus cutting profits, lowering consumer prices and stream-lining production, through investing. This is what is called capitalism.
      Imagine the fisherman gets old and has quite a few pearls in his possession. A new fisherman takes his place, so there are still three actors in the market: a baker, a fisherman, and a wagon maker. The fisherman is very intelligent and finds ways of being very successful in catching fish. He lowers the price of each fish a little bit, but is still able to make a lot of money from his business. He somehow knows there is no one able to buy the boat needed to compete with him, except for the old fisherman (who has no interest in going back to catching fish).
      But since the fisherman is making profits there is an incentive for others to catch fish and get part of the profit. The baker’s son sees the opportunity but has no pearls to invest in the boat necessary for such an enterprise. But he knows the old fisherman has quite a few pearls, and one day goes to him offering him a very good deal. He says he wants to buy a boat to earn pearls from catching fish, but does not have enough pearls to make the purchase. So he offers the old fisherman the deal of buying (and owning) the boat, and the baker’s son will pay him a number of pearls every month. This way he will in time pay for the boat, and gives the old fisherman an extra pearl with every payment for the trouble and use of his property.
      The old fisherman thinks about it, and finds the idea very attractive. So he agrees to pay for the boat and teaches the baker’s son a few secrets on how to catch very big fish. The baker’s son enters the markets and sells his fish, of course to a slightly lower price than the other fisherman. So the fisherman will have to lower his price not to lose the customers. Thus, the price of fish goes down.
      The baker’s son sells the fish to a price covering the costs of the boat, the small profit for the old fisherman, and his personal expenses. Probably the other fisherman sells his fish for about the same price, since he wants to get as much as possible for his fish, but cannot charge a higher price than the competitor (the baker’s son). So, spontaneously and voluntary there is capitalism created in the market.
      Also, the old fisherman could agree to a slightly different deal. He could agree to buy the boat for the baker’s son in order to start the enterprise, but with the condition that he gets part of the profits. Perhaps they agree that the old fisherman buys the boat and the baker’s son does all the work, but they split any profits fifty-fifty. In this case they have started a corporation and own 50 % each of the stock. The corporation may hire people to professionally do necessary work, but the owners still require their money back - and maybe a little profit on top. Corporations, the stock-market etc are all inventions of voluntary exchanges and agreements between individuals. But all these things are today thoroughly corrupted by the state and its laws.
      Anyway, since all these things are directly derived from the simple barter situation and no force is added it cannot be any less “ethically inoffensive” (your words) than the original situation. What has really changed is that people get cheaper fish while the baker’s son earns a living and the old fisherman gets a profit (this profit is nothing but a small payment to make it worth his while to risk his justly achieved property). Also, the boat maker has sold two more boats. I find nothing offensive in this.
      What I find offensive is the so-called market of today, where all these voluntary actions leading to competition, productivity and capitalism have been set aside by the state through coercion, force, and fraud. There is no such thing as a market the way I define it existing today. The closest there is is what is usually called the “black” market, but the prices in the black market are much higher than they should be because of the constant threat of state repression. And most of the so-called market instruments causing balance and consumer-power through the voluntary actions of individuals are set aside by the threat of repression.
      Of course, the above example is a simplified abstraction of the marketplace. It is much more advanced than this since there are many, many more actors involved. But the basis is exactly the same. The creation of money, competition etc actually happened in about the same way as in the example. With a little coercion added by the state, of course, which corrupted the results.
      So as you probably see, the market as I define it is simply people coming together voluntarily to make exchanges, and what that eventually leads to. There is no essential difference between the simple barter trade and global corporations.
      You are correct in that today’s “market” is somewhat oppressive and repressive, but it is not because of the market instruments competition, money or capitalism - it is because they have been corrupted by the state. For example, in such a free market as I have described there could be no such thing as the speculation in currencies happening every day these days - making money doing really nothing. The currencies of today have no real value (such as pearls or gold), but are simply pieces of paper and ink. What makes people think such “money” has a value is simply because the state forces people to use it. And because there is no identifiable value, people can through simple transactions make more “money” from speculating if the value placed in the “dollar” is really corresponding to the current exchange rate for the “euro.”
      With a market not intervened by the state there would be no such fiat currencies. Instead people would trade in pearls, gold or whatever (and receipts of ownership of such; or barter). With such currencies there is no way of making a profit in speculation, since the currencies are simply products as anything else.

Per Bylund