The marketplace is complex and confusing. Even economists who have spent their whole careers studiously researching market behaviors disagree widely about policy recommendations. But views about how markets function can generally be simplified into two worldviews.
The first view sees economic activity as a conflict.
Conflicts have winners and losers. In a world of limited resources, a change in conditions must necessarily reshuffle the deck to give some an advantage and others a disadvantage, like the dealing of cards in a poker game. It is also assumed that in any given exchange there must necessarily be a stronger side and a weaker one.
The outcome of these rules should seem clear: those who, by nature or happenstance, are on the advantaged side of the equation use their position to further weaken their opponents and increase their advantage. This being the very nature of human interaction, the only means of preventing a disadvantaged person or group from abuse and exploitation is to regulate the advantaged through the highest power available to men—the force and threat of law.
The second view sees economic activity as an agreement.
It is incredible that there should be two ways of understanding a subject that are such polar opposites, but there you have it. The second view observes the general rule that an economic exchange between two or more parties is impossible without mutual agreement to the terms of the exchange. In other words, people give up something because they expect to be made better off—the return is expected to follow the investment, either immediately or over some period of time.
There are a couple caveats to this. A person may give without an expectation of return, which we call charity. We would consider a gift a valid expression of freedom in which there is no victim. But people may also give into an exchange under false pretenses, like buying something that simply doesn’t work. We call this fraud if it can be shown that the seller willfully mislead the buyer. This would be an invalid exchange, since the terms of the agreement are not based in reality. In this case, the innocent party should be protected by the force and threat of law.
A very simple way to think of the first view is like two separated circles on a page, each one representing someone’s interest. If you have to place a dot—the final outcome—somewhere on the page, you may only choose one. But the second view looks like a Venn diagram, with the circles overlapped. You may place the dot in one or the other, but also the center, where all interests coalesce.
I have always found the second to be the more gratifying, optimistic, and accurate depiction of social life. It asserts that value can be created from nothing, and therefore the marketplace is not a poker game, but an ever-expanding network of opportunity. It suggests that peace and prosperity between people and nations is possible through trade and mutual service, not a fight over limited resources.
But also, the second view provides insight into how individuals can increase their own wealth and effectiveness. The answer is not to destroy someone else, but to find ways to build them up and serve their needs. An entrepreneur should think of ways to help others achieve the things they want, and combine interests in one solution that satisfies multiple parties. That’s how great companies are built and how economies—and people—thrive.
This article was originally posted at valuesandcapitalism.com