The Ethics Of Liberty - Interpersonal Relations: Voluntary Exchange


The Ethics Of Liberty - Murray Rothbard

Robinson Crusoe doesn't stay alone for long.  Soon he encounters Friday or Bob, or Steve.  Then come many others who are also doing their best to survive on the island.  They will all enter into the process of ownership, production, and consumption.  But if that is all they do, they will all be bound by their personal limitations.  However, if they work together in trade, they will all vastly improve their material situation.  This is part of the natural law of mankind.

                "Economics has revealed a great truth about the natural law of human
                interaction: that not only is production essential to man's prosperity and 
                survival, but so also is exchange."

Exchange benefits humans because there is a high level of diversity between individuals.  In other words, inequality is important if humans are to benefit one another.  For example, maybe Crusoe is really good at growing wheat while Friday is much better at catching fish.  If so, the lives of both are improved.  If Crusoe devotes his energy to wheat production, Friday to fish production, and then the two exchange their goods with one another, they get more of each than they would if they had to produce both themselves.  It is also important that there be a variety of land types containing different natural resources.  If all land was the same, the types of goods possible to produce would be limited.  Exchange is only beneficial when people and land are unequal or different.

                "natural laws - on which all of economic theory is based: a) the great variety
                of skills and interests among individual persons; and b) the variety of 
                natural resources in geographic land areas."

For this benefit of exchange to occur, Crusoe doesn't even have to be better at growing wheat than Friday.  Even if Friday is better at both, it is still better for both if Friday concentrates only on what he is best at and then Crusoe focuses on the other thing.  This is the Law of Comparative Advantage discovered by David Ricardo.  With this type of exchange relationship, the strong don't dominate the weak or impoverish them by their superiority.

                "On the contrary, it is precisely on the free market where the "weak"
                reap the advantages of productivity because it benefits the "strong" to
                exchange with them."

If there was no exchange between the strong and weak, there would be no wealth.  Everyone on the Earth would be like Robinson Crusoe, all alone producing everything for himself, eking out a subsistence level of survival at best.

At the base level of exchange, what is being exchanged isn't the physical goods themselves but the right of ownership of those goods.  The person receives ownership rights, and can then do with them what he pleases.  The new owner can exchange them once again or consume them without the previous owner's consent.

As more and more people are added to the exchange system, the variety of goods and services expands.  It then becomes more difficult to coordinate direct exchange.  Crusoe would have to find people who want grain.  At the same time, he would have to find people producing things he was interested in, in order to complete an exchange.  For people offering a service like teaching piano it becomes even more difficult to coordinate the likes and needs of different people.  What happens is that quickly one product becomes widely valued by everyone, "steady demand".  It is used as a medium of exchange, otherwise called money.  That product then becomes the go between for all exchanges.  No longer do you have to match two parties who want one another's goods.  Only one party of the exchange needs to find the good they want, because the other side will always take money.

Money will have properties like "high value, steady demand, and ready divisibility".  Something that has high value will be more easily transportable. You can carry money in your pocket  with enough value to purchase many goods and services.  Ready divisibility is important so that goods with a variety of values can be purchased.  Historically the best products for using as money were precious metals with gold and silver being the best of that class.

Through this process of production and exchange individuals can build wealth.  All exchange though originates in the initial production of the good, which starts at the discovery and ownership of land.

                "all production of capital goods reduces ultimately back to the original
                factors of land and labor, all production reduces back either to labor
                services or to finding new and virgin land and putting it into production
                by means of labor energy."

The next step in the analysis is to describe the complete "structure of production."  Not every exchange is one of consumer goods, called "horizontal" exchange.  Exchange of capital goods also occurs along multiple stages of production, called "vertical" exchange. The following is a vertical exchange example. Mr. Farmer grows wheat and sells it to Mr. Miller for an agreed upon amount of gold. Mr. Miller grinds the wheat into flour and sells that to Mr. Baker for an agreed upon amount of gold.  Mr. Baker uses the flour to make loaves of bread and sells loaves to Mr. Sandwich for an agreed upon amount of gold.  Last, Mr. Sandwich uses the loaves to makes sandwiches which he then sells to consumers at his shop for an agreed upon amount of gold.  "Structure of production" describes these stages of production.  Consumer goods are only produced at the last stage.  All goods before that are called capital goods.  They are transformed step by step along the vertical structure of production before being sold to the consumer.

An important role in this vertical exchange is the capitalist.  This is a person who doesn't consume everything he produces or receives by exchange.  He saves up gold and other resources as "capital", which allows him to engage in activities to seek future profit.  He lives off his capital while working on future exchanges that will bring him greater wealth in the long run.  Think about a fisherman who saves resources so that he can buy a boat and a large net.  Before he buys the boat, he hand fishes with a small net and saves a portion of his earnings.  During that time he must have a more meager lifestyle than if he used all the money from selling fish for purchasing things.  But once he has the boat and new net his lifestyle greatly improves because with the boat he is producing a hundred times as many fish as before.

Those who don't have savings can't defer payment.  They must prioritize receiving money for the work they do immediately, in order to meet short term needs.  Others who could possibly act as capitalists choose not to, because there is risk that the business venture will not pay out at the end.  The capitalist or entrepreneur is willing to take the risk for a larger potential reward.  In order to do that, he can employ laborers to produce goods along the full structure of production.  The end goal is to produce a consumer good that will be sold at a profit.  The capitalist gets paid out of the profit of the end sale. He is spending money and resources up until that time.  If there is no profit at the end, then the capitalist does not get paid. Yet the laborers are paid for the work performed whether or not the business venture was profitable.

                "the capitalist, far from somehow depriving the laborer of his rightful ownership
                 of the product, makes possible a payment to the laborer considerably in advance
                of the sale of the product.  Furthermore, the capitalist, in his capacity as
                forecaster or entrepreneur, saves the laborer from the risk that the product
                might not be sold at a profit."

Instead of the capitalist exploiting the labor of others, he is providing a benefit to laborers by paying them for their work even before the capitalist receives his payment from selling the finished good.  Without him there are no vertical exchanges and therefore no multi-level structure of production.

Putting all of this together, people can create a free society.  The definition of which is a collection of people who all possess the right to own their bodies, the land which they have transformed with their labor, and the goods produced as a result.  The free market then exists within a free society where individuals exchange the ownership titles of their property to others.  Such exchanges only occur when the exchange is mutually beneficial.

Included within an individuals property is their labor.  A person can sell his labor as a commodity in the market in exchange for money.  So, yes, labor is a commodity because it can be exchanged.  That is not a bad thing.  Without that fact civilization is not possible.  But that doesn't mean the individual himself is a commodity because the person's will can't be exchanged.  The will stays in the body.  That means logically slavery is not possible in a free society.  You can remove the labor from a person in an ethical manner but not their will.

The libertarian society is described as one with "pure liberty" where no one's property rights are violated.  That means every individual is free in their use of their property to an absolute degree.  That means we don't have to infringe upon people's rights in order to put together civilization.

                "men are born free, and need never be in chains.  Man may achieve liberty
                and abundance, freedom and civilization."

When defining liberty like this some may say that individual freedom is curtailed because they are not freed to take from others whatever they will or do whatever they will.  But again this is misunderstanding freedom for power.  In a libertarian society, each individual is restricted to act in a way that does not violate the property rights of others because the natural law of man dictates that this be so.  Humans have not been granted the power or right to transgress others' rights.  So we can have an absolutely free society even though individual action is constrained by the concepts of natural law and natural rights that Rothbard introduced earlier.  Moreover, in a free society each individual will have more power through exchanging in the free market.

                "any man's power to act and do and consume is enormously greater
                in such a world of complex interaction than it could be in a primitive
                or Crusoe society."

One way to prove what natural law and rights concepts are true is to apply the test of universality.  Universality is used to determine physical laws in the hard sciences like physics.  If an ethical principle proposes that particular individuals have a right to do something that doesn't apply to everyone or in every situation, then it fails the test.  That principle must not to be included in natural law philosophy if the goal is to create a free, libertarian society.  Everyone, has a right to own themselves, their homesteaded land, resources which they produced from that land through labor, and goods voluntarily exchanged on the free market.  The vast majority of other proposed rules about ownership or rights can't be universally applied and therefore can not be included in a natural law philosophy.

                "if there is any coercive rule by one person or group over another...
                then it is impossible to apply the same rule for all; only a rulerless,
                purely libertarian world can fulfill the qualifications of natural
                rights and natural law, or, more important, can fulfill the conditions
                of a universal ethic for all mankind."


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