Comments (15)

• Daniel M. Ryan

  One of the sources of the mistaken impression that an exchange is (or should be) an exchange of equal value actually comes from negotiation strategy. A good negotiator tries to aim at an offer that he or she would be indifferent to the other party walking out on. This strategy, I am fairly sure, is considered the sine qua non of exchanges amongst equality-of-value theorists, even though it is only a negotiating ploy...especially given that if it is practiced to perfection, then it will result in no deals being cut.

  Published: November 21, 2006 8:11 AM

• Cyd Malone

  Outstanding article - simple, concise, well-written. With the exception of the author's inexplicable, irrational opinion that "Fly By Night" is nothing but vulgar noise, this column is dead on correct.

  Published: November 21, 2006 8:21 AM

• Yancey Ward

  You don't have read or hear very much from the chattering classes (the media) to see that this subject is one for which they have almost no understanding-they always take their third-party subjective valuation of an observed transaction as gospel, and then call for government action to rectify the perceived wrong.

  Published: November 21, 2006 8:21 AM

• Henri

  Hmm 'Fly By Night' a double live album?

  "Fly By Night' is the second studio album that Rush recorded. Its the first albumn with Neil Peart on it. Their 70s live double album is called 'All The World's A Stage'. Btw 'Fly By Night' is still one of my favorite albums and I am 48!

  Published: November 21, 2006 8:48 AM

• N. Joseph Potts

  Not mentioned: since the author admitted he was about the throw the album away, it would have been just as fair for him to GIVE the album to his friend.

  And with the author's testimony, his friend might have arranged to have the government intervene to enforce exactly that deal.

  Then they wouldn't have been friends anymore. But they also wouldn't trade anymore which, as the author indicates, is much more important. More important still is that OTHERS wouldn't trade with each other, out of the same fear of having their deals revised ex post facto.

  "Congress shall make no law in violation of a contract," right? Sure.

  Published: November 21, 2006 12:53 PM

• Paul Marks

  When it is most vital for exchange to be free, i.e. a time of sudden change or crises, is exactly when government is most likely when government is most likely to step in to "prevent exploitation" or whatever. Hence (for example) the desperate efforts of President Hoover to prevent wages falling during the depression, he failed to see that without a fall in wages (as prices and output fell) there could be no recovery - even though in the previous credit money bust (that of 1921) the government had not tried to prevent prices and wages adjusting and the economy had started to recover in six months. Neither economic law nor experience had any effect on the mind of the "Forgotten Progressive" (now considered a "do nothing free market man" by misinformed historians).

  Scholastic writers in the middle ages were divided over whether a "just price" (for goods or services) was a free price or an historical price (i.e. that the price or wage of yesterday should be the price or wage of today or tomorrow), but the mainstream media is not divided.

  Any price rise or wage cut in a time of crises is "unjust" and they demand that government "do something" - failing to see that this intervention will cause great harm.

  It was the same in ancient civilizations - when they went into decline. Even the Roman Empire eventually fell into the error of trying to control prices (and much else) thus dooming itself to decline long before the barbarians were at the gates.

  Published: November 21, 2006 1:16 PM

• Eric

  To go one step further, had there been a problem, say, the album was found to have many scratches and would not play, then the courts would have provided a solution, which might have cost many $1000 to make a decision.

  A better way is that found on places like ebay or amazon where buyer and seller reputations are at stake. Just today, I received a $5 item (with $5 shipping) which was not the item ordered (a specific camera data cable was ordered and the wrong cable was delivered). At first, the seller said, return the item for refund but w/o refunding shipping.

  I responded, No, send me the correct item at your cost and a self mailer to return the wrong item, as the mistake was clearly theirs. Then I submitted a bad review of the seller, and by the next day the seller agreed to refund my $10 and did not request the item returned so long as I withdrew my bad rating of the seller. I then withdrew my bad rating.

  This result required no government courts and was handled entirely privately. It is one of the reasons I shop at Amazon. If the seller had refused, his rating would drop and eventually he would no longer be selling on amazon. Amazon also offers a warrenty for buyers who don't turn in an excessive number of claims. I'm sure the government won't be pleased as they lose their monopoly on selling decisions. In my case, the seller has decided to just pay the minimum cost of his mistake. He could have refused, but then he might have lost business in the future. I might have lost, but had the power of "rating" him on my side. Far better than courts and judges, and it's all come about over the last few years with the technology of the internet.

  Published: November 21, 2006 1:40 PM

• Jack Maturin

  This Rush deal reminds me of the apocryphal story of the inventor of fibre optics. He sold the patent to Siemens for $5 million dollars. Afterwards, he bragged to Siemens he would have taken a measly $1 million. "That's Ok," said Siemens. "We would have have paid you a measly $100 million. Thanks for the discount." Which is probably why it's a good idea NEVER to brag that you've "ripped" somebody else off! $-)

  Published: November 21, 2006 3:37 PM

• Daniel M. Ryan

  "Not mentioned: since the author admitted he was about the throw the album away, it would have been just as fair for him to GIVE the album to his friend.

  And with the author's testimony, his friend might have arranged to have the government intervene to enforce exactly that deal....

  This brings to mind a comedic scenario, based upon that Rush album anecdote.

  Busybody #1 talks to the young Mr. Fedako and concludes that he got $5 more than he should have for the album. So, Busybody #1 insists that Mr. Fedako give the $5 back to his friend.

  Busybody #2 talks to Mr Fedako's friend and finds that he was willing to pay $10 for the album. So, Busybody #2 insists that the buyer rush over to Mr. Fedako and pay him the extra five bucks.

  Imagine if there was a "Court of Economic Justice" empowered to hear cases like this. The results would be as absurd as that conviction of a certain fellow for a bribe slipped to Senator Fall, for which the good senator was aquitted of the charge of recieving it!

  Published: November 21, 2006 6:41 PM

• T.G.G.P

  Good article.

  A lot of libertarians and nerds dig Rush. That includes me, although I only really like their 70's stuff.

  Published: November 21, 2006 7:35 PM

• rtr

  Yes, it was this recognition of unequal valuations in exchange that began the modern science of economics with Carl Menger in the 1860s. For almost 2,000 years before that, all the eminent philosophers were stuck on the problem of how a diamond could be more valuable than a glass of water. That should put in perspective why such confusion still reigns for the general masses. It hasn't even been 200 years since this fundamental pillar of the science of economics was established.

  This is the process by which market value is established, observed actual exchanges of one thing for another. Unfortunately, even much if not most of the Austrian School as well is still confused today when "money" is included as a "means of exchange". There's a fundamental cognitive failure to realize that "money" is just another "one thing". It doesn't matter that the Rush album was traded for $5. The same principle would hold whether the Rush album was traded for anything else other than "money", such as traded for a Led Zeppelin album, a book, or a banana and a peanut butter and jelly sandwich.

  It takes hundreds, thousands, and millions of trades to establish ever changing market value. NYSE stocks are often quoted at penny wide bid ask spreads. Playstation 3s for sale on EBAY might sell for an average price of 3 times what those who bought them at the store paid for them for a period of time. If EBAY was around in the 1980s both parties might have had access to more information of recorded exchanges of Rush albums for dollars and perhaps the average market price would have been $9.25 for that particular used Rush album. But even trading the Rush album for $5 means you are $5 better off rather than $0 no better off, even if with better market information from allowing thousands of more unhampered trades in a free market society could have brought about the possibility that you could have been an additional $4.25 better off.

  The key fact is that both parties to an exchange are better off, wealthier having traded. Free trade is a wealth formula which creates wealth since by definition both parties are always irrefutably better off having traded. That's the *only* reason trade occurs. Using force to prevent trade by definition creates poverty, causes a state of less wealth for all who are prevented from freely trading.

  This is the simple recongition which permeates through all the affairs of human action. One of Mises greatest recognitions which put him at the top of the tower of political economists over the likes of Plato, Rouseau, Smith et al was the declaration that people are either freely trading with one another or they are not. There is no in between "third way" possibility. It's irrefuatably either/or. As such this shows that economics began as a methodoligcal epistemological branch of philosophy. And this is how that branch was formed.

  In any debate on any political topic, lies hidden this fundamental dichotomy of free trade versus violent coerced theft. Elucidating that whenever and wherever it exists is what will eventually win the libertarian day. It really is that simple. It's just a matter of making it generally understood in the same way it is generally understood that the earth is not flat nor does the sun revolve around the earth. It's generally understood so even without the specialized knowledge of astronomy, geometry, and physics that prove it so. That is what primarily lies as the current barrier to a much more libertarian state of affairs.

  Published: November 22, 2006 1:24 AM

• Alex M Thomas

  Your argument that the buyer and seller can reach a conclusion without government intervention is right.

  The example you stated proves that.

  What if you knew that the 'album' you possessed was highly in demand and that people were willing to spend more than $10? You would try to sell it at some price close to $10 than $5.

  An informed consumer will be able to be a better choice relative to a lesser informed one. Likewise, in an exchange between a producer and a consumer, the producer is much better informed than the consumer.

  A government would not be needed in an economy where everyone had the basic necessities of life and everyone had equal opportunities for growth and development.

  I enjoyed reading the article as it was perscpicuously written. :)

  Published: November 22, 2006 4:27 AM

• Dan Coleman

  Alex M Thomas wrote:

  "A government would not be needed in an economy where everyone had the basic necessities of life and everyone had equal opportunities for growth and development."

  
  You are correct in saying that government would not be needed in such a society. We should also add to that, however, that a government isn't actually needed in any society, regardless of the status of "basic necessities" (whatever that may mean) and "equal opportunities for growth and development" (likewise). In fact, the best way to ensure those things for people is to get the already omnipresent State out of there.

  Published: November 22, 2006 6:58 AM

• Yancey Ward

  rtr,

  I was agreeing with you right up until you wrote the following:

  The same principle would hold whether the Rush album was traded for anything else other than "money", such as traded for a Led Zeppelin album

  Anyone who would trade a Led Zeppelin album for one by Rush needs to be arrested and sent to Abu Ghraib.:~)

  Published: November 22, 2006 9:17 AM

• DittoHead

  Wow! I thought I was his biggest fan, but even I ditto know Limbaugh had been a rock star in the 70s!

  Published: November 22, 2006 9:21 AM