A Society of Mutual Benefactors

by Jeffrey Tucker - June 4, 2010

Reprinted with permission.

Checking out at the grocery store the other day, I paid for my sack of rolls. The checkout person handed me my bag.

"Thank you," I said.

"You're welcome," she said.

I walked away with a sense that something was wrong. Do checkout people usually say "you're welcome" and nothing else? Not usually. Usually they say "thank you," same as the customer. I was left with an inchoate sense of, "Hey, I did something for you, too."

When do we say "you're welcome"? We say it when we give a gift (a good or service) to a person without receiving anything in return. For example, I might hold a door for a person. That person says "thank you," and I say "you're welcome." Another time might be at a birthday party, when the recipient of a gift expresses thanks.

These are one-way examples of benefaction. We are giving but not necessarily getting anything tangible in return. What makes the case of the commercial exchange different? Why do both parties say "thank you?" It's because both sides give a gift to each other.

When I bought those rolls, this is precisely what happened. I saw rolls available, and I decided that they were worth more to me than the $2 I had in my pocket. From the store's point of view, the $2 is worth more than the rolls being given. Both parties walk away with a sense of being better off than they were before the exchange took place.

The checkout person is there to facilitate this exchange and speak as a proxy for the interests of the store. The store was receiving a gift of money (more highly valued than the rolls), and I was receiving the rolls (more highly valued, from my point of view, than the $2 I gave up to get them).

This is the essence of exchange and the core magic of what happens millions, billions, trillions of times every day all over the world. It happens in every single voluntary economic exchange. Both sides benefit; each side is a benefactor to the other side. This system of mutual benefaction, unrelenting and universal, increases betterment all around. It increases the sense of personal wealth, which is to say, it increases social wealth when everyone is involved in the activity.

To be sure, a person might change his mind later. I might arrive home with my rolls and discover that I'm out of butter, and I would have been better off buying half as many rolls and using the rest of my money to buy butter. I might decide to drop bread from my diet. I might conclude that the rolls are really not that tasty. All these things can happen. Such is the nature of the universe that the future is uncertain and human beings are inclined to be fickle. But, at least at the time of the exchange, I believed I was better off, else I would not have made the exchange in the first place. I walked away with a sense of gain. The store owners had the same sense of gain. We both gain ex ante, which is enough to recommend the exchange system.

Now, if all of this seems obvious and not even worth pointing out, consider that most philosophers in the history of the world have missed this point. Aristotle, for example, reflected at length in his Nicomachaen Ethics on the issue of economic exchange, but he started with the assumption that exchange takes place when valuation is equal or commensurate. But what about cases in which it seems obviously incommensurate, such as when highly valued and rare physician services are traded for something widely available, like corn? Aristotle believed that the existence of money serves to somehow equalize the exchange and make it happen, when it should be apparent that money itself is only a good introduced to make exchange more convenient.

The problem he faced was his initial premise that economic exchange is based on the equal value of items in the exchange. This is just wrong. If two people value goods equally, an exchange would never take place in the first place, since no individual could be made better off than before. If exchange is based on equal value, people are merely wasting time and money engaging in it at all. Exchange in the real world is based on unequal valuations of goods and expectation of being made better off. It is a matter of two people who give each other gifts in their own self interest.

The discovery of the correct theory of exchange had to wait until the late Middle Ages, when the followers of St. Thomas Aquinas saw the logic for the first time. They saw that economic exchange was mutually beneficial, with each party to the exchange seeing an increase in personal wealth, subjectively perceived. Therefore, the action of exchange on its own becomes a means of increasing the wealth of all people. Even if there is no new physical property available, no new innovations, no new productivity, wealth can be increased by the mere fact of exchange-based human associations.

As with many postulates of economics, this seems obvious once you see it, but it is evidently not obvious at all. In fact, I've observed that many people's underappreciation of the contribution of the market order is rooted in the perception that buying and selling stuff really amounts to nothing wonderful at all. It is just a swirl of churning and burning for the sake of nothing in particular. Society could easily do away with it and be no worse off.

I have a hard time figuring out what people who believe this are thinking. Let's say that I proposed abolishing gift gifting. Wouldn't it be obvious that society would be worse off if I got my way? The receiver of gifts would no longer enjoy the material manifestation of the appreciation of others, and we would all be denied the chance to show others our appreciation of them.

If it is true, as I've argued, that an economic exchange is a two-way gift, an episode of mutual benefaction that is pervasive throughout society, it becomes clear that society would be completely sunk without as many opportunities as possible for economic exchange. Anyone who champions the well-being of society should especially celebrate commercial centers, stock markets, international trade, and every sector in which money changes hands. It means nothing more than that people are finding ways to help each other get by and thrive.

However, if we do not quite see the underlying logic of exchange and how it works to help everyone, it is easy to underappreciate what the market means to society. I'm sorry to say that this is a tendency in some circles that discuss Catholic social teaching. The market is rarely given the credit it deserves for helping humanity improve its lot.

Pope John Paul II's Centesimus Annus offered a robust appreciation of the market. But Pope Benedict XVI's encyclical Caritas in Veritate was comparatively less celebratory. The reason might be his mistaken observation that "the market is the economic institution that permits encounter between persons, inasmuch as they are economic subjects who make use of contracts to regulate their relations as they exchange goods and services of equivalent value between them, in order to satisfy their needs and desires."

Having thought through this, it becomes very clear where the seemingly minor error is in this passage. In the market, we do not exchange goods and services of equivalent value. Indeed, there would be no point whatsoever to exchange anything if the value between the goods and service were equivalent. The valuation is not equivalent – and that is a wonderful thing, because it is this very absence of equivalence that makes exchange necessary and mutually beneficial. Not to see this is just an error, a seemingly small one with enormous consequences.

The fallacy of value equivalence in exchange has been refuted for some 500 years, and yet it keeps reappearing. Economics is one of those sciences that requires careful thought. It can't be quickly intuited from a handful of moral postulates and well-wishes for all. It must be studied and understood with deductive tools and patient delineation of a wide range of concepts. It is because of this that economics as a science was so late in development. But it is not too late for us to understand.

The understanding of economics leads to a direct appreciation of the contribution of free markets to the well-being of all. If you read something that seems to put down the market economy, it is more than likely that a fallacy such as the above is at the root.

At some point today, you will undoubtedly participate in some economic exchange. Use the opportunity to reflect on what a glorious dynamic underlies it. You can say "thank you." The person who takes your money can say "thank you." Such opportunities account for most of the peace and prosperity we enjoy this side of heaven.

Jeffrey Tucker is the editor of Mises.org. Contact him at tucker@mises.org.