Friday, November 03, 2006

Background to prior post: Congress giveth, congress taketh away

Market exchange is not based on both parties appraising the goods about to be exchanged at equal value; the parties instead exchange based on a two-way, unequal valuation of goods to be exchanged.

An example from my youth: During high school in the early 1980's, I had purchased a double-live album of the rock group Rush. Teenagers can be a fickle lot and I was no different. My music tastes changed and I morphed from a Rush fan into someone who felt that Fly By Night was beneath me. Not only did I no longer listen to the album, I wanted to get rid of it soon since I felt that the album was polluting my collection.

Along comes a fellow student who was fast becoming an ardent Rush fan. We agreed to an exchange: I would trade my $15 album for his $5. Fair enough. Right after the exchange, as I held the $5 and he held the album, the new Rush fan said something along the lines of, "I just ripped you off. I would have paid $10 for that album." I replied, "No, I just ripped you off since I was about to toss the album into the garbage anyway."

You see, we both had different valuations for the $5 and the album, that's why we traded. But, carefully note the verbal dialogue that occurred. To the outside observer, one of us may appear to have been "ripped off." Depending on the observer's point of reference, they may side with my claim or the claim of my fellow trader.

Or, and this is where things go wrong, one of us may have actually decided to have acted on one of those statements. Instead of accepting the exchange as agreed, I may have sought third-party rulings on the fairness of the trade. What sounded good ex ante - before the trade - now sounds like unfair negotiations ex post - after the trade. I should have received the $10 since it was a $15 album - I was truly "ripped off." Wasn't I?

I probably could have found the sympathetic ear of a government official who felt the tug of omniscience; someone believing in their own capacity to understand true value, and someone believing that the state needs to protect those acting in non-coerced exchanges. My fellow trader would have been forced to hand over the additional $5 so that the fair exchange occurred. But, why is that any more fair than the exchange we initially agree upon? In fact, it isn't.

The actions of the sympathetic do not increase fairness, neither do they increase wealth. The actions instead decrease wealth as no one knows the end result of a valid exchange. The rule of contract and common law is replaced by the rule of civil law and bureaucracy. As a result, people become less likely to exchange as the rules of the game change with the political winds.

The point: When a Tiberi, or any other government official, interferes with a valid, non-coerced exchange, they may appear to be helping one individual, but they are actually harming a foundation of modern society; free exchange of goods and services. They tend not to believe that their action can result in harm because power is almost always cloaked by the veil of omniscience.

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