Here’s a good basic introduction to the free enterprise system by Dr. Jay Richards:
In this lecture, Dr. Richards covers the following topics:
- the piety myth – thinking that good intentions matter more than good results
- the greed myth – thinking that capitalism is about greed instead of about innovation and serving others
- the zero sum game myth – thinking that voluntary exchanges between buyers and sellers result in win-lose outcomes
- the materialist myth – thinking that there is only a set amount of wealth to be divided by competition
It turns out that the best system for lifting the poor out of poverty – by work or charity – is the economic system that creates wealth through human ingenuity and hard work. That system is the free enterprise system.
Something to read?
If you can’t listen to the lecture and don’t want to buy the whole book “Money, Greed and God?” Then I have a series of posts on each chapter for you.
Here are the posts in the series:
- Part 1: The Eight Most Common Myths about Wealth, Poverty, and Free Enterprise
- Part 2: Can’t We Build A Just Society?
- Part 3: The Piety Myth
- Part 4: The Myth of the Zero Sum Game
- Part 5: Is Wealth Created or Transferred?
- Part 6: Is Free Enterprise Based on Greed?
- Part 7: Hasn’t Christianity Always Opposed Free Enterprise?
- Part 8: Does Free Enterprise Lead to An Ugly Consumerist Culture?
- Part 9: Will We Use Up All Our Resources?
- Part 10: Are Markets An Example of Providence?
Parts 4 and 5 are my favorites. It’s so hard to choose one to excerpt, but I must. I will choose… Part 4.
Here’s the problem:
Myth #3: The Zero Sum Game Myth – believing that trade requires a winner and a loser.
One reason people believe this myth is because they misunderstand how economic value is determined. Economic thinkers with views as diverse as Adam Smith and Karl Marx believed economic value was determined by the labor theory of value. This theory stipulates that the cost to produce an object determines its economic value.
According to this theory, if you build a house that costs you $500,000 to build, that house is worth $500,000. But what if no one can or wants to buy the house? Then what is it worth?
Medieval church scholars put forth a very different theory, one derived from human nature: economic value is in the eye of the beholder. The economic value of an object is determined by how much someone is willing to give up to get that object. This is the subjective theory of value.
And here’s an example of how to avoid the problem:
How you determine economic value affects whether you view free enterprise as a zero-sum game, or a win-win game in which both participants benefit.
Let’s return to the example of the $500,000 house. As the developer of the house, you hire workers to build the house. You then sell it for more than $500,000. According to the labor theory of value, you have taken more than the good is actually worth. You’ve exploited the buyer and your workers by taking this surplus value. You win, they lose.
Yet this situation looks different according to the subjective theory of value. Here, everybody wins. You market and sell the house for more than it cost to produce, but not more than customers will freely pay. The buyer is not forced to pay a cost he doesn’t agree to. You are rewarded for your entrepreneurial effort. Your workers benefit, because you paid them the wages they agreed to when you hired them.
This illustration brings up a couple important points about free enterprise that are often overlooked:
1. Free exchange is a win-win game.
In win-win games, some players may end up better off than others, but everyone ends up better off than they were at the beginning. As the developer, you might make more than your workers. Yet the workers determined they would be better off by freely exchanging their labor for wages, than if they didn’t have the job at all.
A free market doesn’t guarantee that everyone wins in every competition. Rather, it allows many more win-win encounters than any other alternative.
2. The game is win-win because of rules set-up beforehand.
A free market is not a free-for-all in which everybody can do what they want. Any exchange must be free on both sides. Rule of law, contracts, and property rights are needed to ensure exchanges are conducted rightly. As the developer of the house, you’d be held accountable if you broke your contract and failed to pay workers what you promised.
An exchange that is free on both sides, in which no one is forced or tricked into participating, is a win-win game.
If you do get the book, be sure and skip the chapter on usury. It’s just not as engaging as the others, in my opinion.