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Evaluation, production, saving, investment, and innovation are
requirements for man's survival and growth according to his nature as an
individual, rational human being.
The fundamental means of survival available to a group are the same as
they are for one person. The only significant differences arise from the
degree of complexity with which the actions of production and exchange are
performed.
The individual acting alone can exchange one state of affairs for
another, but only through the expense of his own energy. Within a free
society, he can exchange the product of his effort (his property) for the
products and services of others, gaining enormous benefits through the
division of labor, specialization, and the
innovation of others.
Thus, a market economy makes survival easier, but through a more
complex means than any one person can achieve alone.
Referring to our earlier example of Crusoe, he couldn't have survived
by acting only as the carpenter on his island, but there are many people who
make a decent living building houses.
Given knowledge as elementary as Crusoe's, and if protected from
coercion by others, people attempt to trade their
property by voluntary consent to their mutual advantage.
They evaluate the products and services offered for trade, and based
on their ability to strike a bargain, choose those that are deemed most
needed or desirable. On each side of the trade, one person exchanges
something judged to be of lesser value for something judged to be of greater
value.
The fact that value is subjective - that people value things
differently - both drives people to trade and makes it possible for both
sides to profit. For instance, a farmer may value a load of horse manure
rather differently than the resident of a studio flat.
As more and more people associate and get involved in the process of exchanging their surpluses, trading becomes more complex.
The interaction of numerous individuals, the social device of production and
trade through free association, is called a market.
The subjective nature of value, along with the fact that differences
in perception of value drive the trade process, seems like a simple concept
but was in fact introduced and formalized by Ludwig von Mises.
Adam Smith and other classical economists thought that trade must be of equal value.
Resources:
- Methods of a Wall
Street Master by Victor Sperandeo.
- Mises.org a website devoted to the Austrian School
of Economics, a school of economic thought founded by Carl Menger (Feb 28, 1840 - Feb 26, 1921) with his work Principles of Economics published in 1871.
Mike Hewitt
Editor
DollarDaze.org
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