The Market Economy: Where Everyone Is a Winner

David R. Henderson relays the following quotation from Alan Blinder’s book, Hard Heads, Soft Hearts:

The soft-hearted attitude holds that we ought to soften the blows for those who play the economic game and lose, or who cannot play it at all. That objective can be served by making the game less vigorous and risky–which is the rationale for Medicare, Social Security, and unemployment insurance. Or it can be done by making the victors share some of the spoils with the vanquished–via welfare benefits, public housing, Medicaid, and progressive taxation. Liberals generally favor such public generosity. But, of course, society as a whole has no Daddy Warbucks. If benefits are to be provided to the underdogs (or losers), the favorites (or winners) must foot the bill.

This perspective is at complete odds with the vision of the market economy put forth by Ludwig von Mises, particularly in his misesmasterpiece Human Action. For Mises, the way to “win” in the market economy is simply to satisfy the desires of the consumers better than rival entrepreneurs. No one is “vanquished” at all, except in the sense that others may prove better at showering desirable products and services on humanity.

In the Misesian view, it is particularly nonsensical for Blinder to speak of the victor sharing “some of the spoils,” since the only way to “win” in the first place is to satisfy consumers. The progressive interventionist who wishes to seize some of the fortune of, say, Bill Gates in order to “do good” with it, completely overlooks just how much Bill Gates has improved the standard of living of billions of people in order to create his fortune in the first place.

Mises endorsed the doctrine of “the harmony of the ‘rightly understood’ interests,” in which society is not analogous to a zero-sum game with winners and losers. As Mises explains:

What makes friendly relations between human beings possible is the higher productivity of the division of labor. It removes the natural conflict of interests….Thanks to the higher productivity of labor performed under the division of tasks, the supply of goods multiplies. A preeminent common interest, the preservation and further intensification of social cooperation, becomes paramount and obliterates all essential collisions. Catallactic [economic] competition is substituted for biological competition. It makes for harmony of the interests of all members of society. The very condition from which the irreconcilable conflicts of biological competition arise–viz., the fact that all people by and large strive after the same things–is transformed into a factor making for harmony of interests. Because many people or even all people want bread, clothes, shoes, and cars, large-scale production of these goods becomes feasible and reduces the costs of production to such an cxtent that they are accessible at low prices. The fact that my fellow man wants to acquire shoes as I do, does not make it harder for me to get shoes, but easier. [Mises, Human Action, pp. 669-670]


10 Responses to “The Market Economy: Where Everyone Is a Winner”

  1. brucetheeconomist says:

    No one should deny that division of labor, and trade makes all the players better off than in autarchy.____

    You can show that with an edgeworth-bolley box.____

    But though the point one trades to is always better, still if you had little ability, capital, natural resources you had claim to by some fluke or another, the better off position will still be pretty bad.____

    I'd argue that the most "liberal" interventions make those who have little to trade with better off and society as a whole as well. Libertarian start with the assumptions that all (or at least the vast majority) have about the same starting point to trade from. There policy perspective flows from. Blinder and those who agree with him are unconvinced of that libertarian assumption.

  2. Sam Grove says:

    " People were social long before they had any significant division of labor. "

    That's as obvious as it is irrelevant to the point. Sure there is little intra-tribal conflict as long as there is plenty of food, but during times of scarcity, the more powerful primates, in addition to having greater opportunity to reproduce, were likely better fed than weaker tribe members. Then there was inter-tribal competition for resources.
    What division of labor accomplishes in the context of trade within and without the tribe is the expansion of resources reducing the need to compete over resources. Division of labor and trade go hand in hand.

  3. Chaddery says:

    Okay, Callahan, give me the epoch where there wasn't significant division of labor. And if there wasn't significant division of labor who the hell recorded the fact that people were living socially? The time to write and develop a language is predicated on significant division of labor.

  4. "What makes friendly relations between human beings possible is the higher productivity of the division of labor. It removes the natural conflict of interests…"

    What nonsense. People were social long before they had any significant division of labor.

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