Voluntary Exchanges and the Free Market

Grove City College sociology professor Steven L. Jones and myself have co-authored a new white paper that has just been published by the Center for Vision and Values. It is entitled "Voluntary Exchanges and the Free Market" and explores the nature and extent of voluntarism in exchange in a free society. The following is from the paper's introduction:

This paper began as a series of conversations between myself and Dr. Shawn Ritenour of the Department of Economics at Grove City College. On the broadest level, Dr. Ritenour and I are both interested in the relationship between social conditions and human action. We are both advocates of free markets, believing that they contribute more to human thriving than other arrangements. We also agree that there is a moral dimension to human action, and that the system of exchange established in any society is, thus, a moral issue as well as a pragmatic one. Within that common ground, however, there is still much to discuss. In particular, this essay examines what it means for an exchange to be voluntary.

The paper begins with a section by me analyzing the nature of voluntary exchange followed by a section in which Dr. Jones argues that, due to extenuating circumstances some exchanges could be less than fully voluntary even in the absence of physical coercion. We both then offer brief responses to one another. In my response to Jones I conclude by saying

[T]he key to getting at the nature of voluntary exchange is to recognize that a person’s preferences are not a cosmic wish list, but a subjective ranking based on everything he thinks relevant to his choice at the time. Instead of concluding that this existential fact implies that exchange is less than voluntary, I suggest we better view free exchange as constrained, yet voluntary.

Does Fast Food Contribute to Obesity?

Peter G. Klein, in his excellent, Organizations and Markets, cites a new paper that says, perhaps not.

The paper is an empirical study published in the July 2010 issue of American Journal of Agricultural Economics. Klein has this to say about the paper:

Previous research finds links between the number and density of fast-food restaurants and health problems, but has difficulty identifying cause and effect (fast food could make people overweight, but fast food restaurants could be put in areas where people are overweight anyway). Dunn uses the number of interstate exits as an instrument for restaurant location to tease out the causal relations, and finds little overall effect of fast food on obesity — none at all in rural areas, a bit in medium-density areas, and only among women and minorities.

Ambrose Pritchard-Evans: END THE FED!

Unfortunately still a Friedmanite concerning deflation, Ambrose Pritchard-Evans has at least come around to the fact that the Fed serves not to "stabilize prices" but, as I wrote last week on LewRockwell.com, the Fed is committed to all inflation all the time. He has issued a mea culpa  of sorts and now says he wants to end the Fed! Speaking of, here's THE book on the topic.

Income Inequality: The Rich Get Richer and the Poor Get Poorer

That's the news anyway. Recently published statistics indicating that income inequality has increased over the past couple of decades have been given a lot of press. Many blame tax cuts for the rich, while others blame laissez-faire capitalism run amok (as if we have a free market in this country).

After lecturing to my Money and Banking class about the consequences of monetary inflation, it occurred to me that such Federal Reserve induced inflation very likely explains part of the increasing income inequality. This is because while monetary inflation never provides a general social benefit, because more monetary units do not increase the quantity of producer or consumer goods at our disposal, it does provide private benefits for those who get the new money first. As such, monetary inflation redistributes wealth, leaving some richer while others are left poorer.

This could be especially true given the shift toward compensating CEOs in stock options. I have no problem with CEOs making absolutely as much as the market will bear, because the market will bear only as much as the CEO contributes in value. If a CEO gains more than his contribution to the firm, the firm will be less profitable to their own hurt. However, as shown on Seeking Alpha during the 1990s much of the new money the Fed created was quickly poured into the stock market and then asset backed securities.

Therefore, those CEOs compensated with stock options benefit from being closer to the new money. Their compensation packages greatly enhance in value from monetary inflation, resulting in a shift in income distribution. I am not sure this is THE explanation, but it is an plausible explanation the needs to be more fully researched.

Private Property Means Exclusive Use

In my Principles of Microeconomics class, I explained last week that all economic policy has an ethical component, so to get policy right it behooves us to understand the ethics of property. While explaining my take on the Christian view of property as it applies to economic policy, one point I like to stress is that private property means exclusive use. The property owner is able to use his property as he sees fit (as long has he does not try to use it to agress against someone's property).

As I explain on page 82 of my Foundations of Economics, this principle of exclusive use is taught in the Bible in the account of Peter's rebuke of Ananias and Sapphira found in Acts 5:1-11. As I explain

In Acts 5, Luke documents the demise of Ananias and Sapphira for lying to the Holy Spirit. and his wife sold a piece of property and asserted they were giving all of the proceeds to the Church in Jerusalem, all the while holding back some of the revenue for themselves. The Apostle Peter confronted saying, “While it remained unsold, did it not remain your own? And after it was sold, was it not at your disposal? Why is it that you have contrived this deed in your heart? You have not lied to men but to God” (Acts 5:4). Peter expressly says that their property was theirs to do with as they saw fit.

The Costs of Socilized Health Care: Evidence from Canada

Yesterday I alluded that we should expect a centrally planned health care system to be less efficient and hence more costly than a decentralized health care industry characterized by voluntary exchange. Predrag Rajsic, PhD candidate at the University of Guelph in Ontario, Canada, explains the often hidden costs of the socialized Canadian health care system. It turns out that time is not on their side.

What Do We Get When the National Government Controls a Cemetery?

6,600 mixed-up graves. Really. Now try to imagine how a centralized health care bureaucracy will coordinate services for billions of people who are still alive. Not a pretty mental picture.

Those who would like to more fully explore the economics of bureaucracy should read Ludwig von Mises' Bureaucracy. I read it during my time as economist at the U.S. Bureau of Labor Statistics and can tell you that while doing so I was seeing the theory practiced every day.