Friday, November 12, 2010

Voluntary Exchange is Mutually Beneficial: Haircut Edition

One of the fundamental principles of exchange is that an exchange that is voluntary is mutually beneficial. This is because that when people voluntarily agree to trade their property, each demonstrates that they value what the receive more highly than what they trade away. Each party receiving a good he values more and, therefore, each party is better off after the trade. Even sociologists who like to point out the existence in perceived power structures agree that voluntary exchange benefits all participants.

This fundamental principle reveals some of the costs of government regulation in the economy. On his blog, John Steigerwald alerts us to the story of armed police raids of barbershops in Florida. The Orlando Sentinel reports that on two days in August and September at least nine shops were stormed and 37 barbers were arrested in front of their customers for the crime of unlicensed barbering. I guess now its, "Shave and a hair cut. . .two-to-five years." Government licensing of barbers and other service providers makes it harder for people to enter the regulated industries, driving up costs and reducing the quantity of services provided.

Such regulation also violates the ethic of property. If someone is willing to pay their own money to have their hair cut by someone without a license, that is because they choose that as their best grooming option. To take that option away is to force them to satisfy their desires in a more costly way. As I point out in Chapter 17 of my book, Foundations of Economics, such regulations reduce the quantity of mutually beneficial exchanges and therefore make people relatively worse off than they would be in a free society.

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