Sorry, Charlie; M. Skousen

by Mark Skousen "All economic transactions involve a win lose proposition ..Every gain involves a loss. " -Charley Reese, Orlando Sentinel May 22,1994 L ord Acton once said, "There is no error so monstrous that it fails to find defend ers among the ablest men." That was my reaction to a series of articles recently written by national columnist Charley Reese. Over the years, Reese has made a reputation as a strong defender of individual rights against a growing Leviathan, the fed eral government. So it was all the more perplexing when I read some of his claims about free-market capitalism: "Two people can't eat the same bean. That's the essence of economics." "All economic transactions involve a win-lose proposition." "The historically visible trend [in capital ist societies] is always for the rich to get richer and the poor to get poorer." "Only the youngest, the strongest can put stock in pure capitalism."

Statements like these were demolished years ago in Leonard Read's classic little book, Cliches of Socialism, which was re cently updated by Mark Spangler under the Dr. Skousen is an economist at Rollins College, Winter Park, Florida 32798, and editor ofFore casts & Strategies, one ofthe largest investment newsletters in the country. For more information about his newsletter and books, contact Phillips Publishing Inc. at (800) 777-5005. new tide, Cliches ofPolitics (Foundation for Economic Education, 1994).Unfortunately, some cliches die slowly. Let me respond to each one of these commonly held criticisms of the free market. Voluntary Exchange Is Win-Win First, is the free market similar to a sporting event, where one team wins and the other loses? Not at all. In every voluntary transaction, both the buyer and seller gain. Here's a simple proof: Suppose I sell an apple to a student for $1. The student buys the apple because he would rather have the apple than the dollar bill. Thus, by purchas ing the apple, he improves his situation. On the other hand, I sell the apple because I'd rather have the dollar bill than the apple. I too am better off.

In Das Capital, Karl Marx popularized the view that all exchanges under free enterprise capitalism involved an equality of values and therefore one person's gain must be another person's loss. But now we see that just the opposite is true: All transac tions in a voluntary exchange involve an inequality of values. In fact, without an inequality of values, no voluntary exchange would ever occur. Because of an inequality of values, both the buyer and seller gain in every transac tion. The only exception to this law is when fraud or deception is involved. When that happens, one party gains at the other's 474 expense. But in a voluntary exchange, where full and honest information is re vealed, everyone benefits. The Essence of Capitalism Reese says that the essence of capitalism is contained in the statement, "Two people can't eat the same bean." Not so fast, Charley. Afree market is notjust an "either or" proposition. Capitalism is also a highly cooperative system. If there are two people and only one bean, the free market provides a better alternative: plant the bean and harvest enough beans to feed both people!

That's the true essence of capitalism. Granted, natural resources are limited. But the beauty of free enterprise is its abil ity to multiply these resources into goods and services that people can use to increase their standard of living. What really mat ters is not so much the amount of resources in their natural state but the supply of economically useable natural resources, which are limited only to the extent of our know-how and physical ability to transform these inputs into useable wealth. In that sense, there is virtually no limit to further advances in our standard of living. In real ity, nature isn't scarce, only the productive capacity of labor to change nature into real wealth is. Capitalism Can Improve Everyone's Standard of Living Finally, Charley Reese is wrong in sug gesting that capitalism breeds inequality, that the rich get richer and the poor get poorer. Under the free market, the rich get 475 richer and the poor get richer too. Histori cally, citizens of capitalistic nations have enjoyed higher real wages and steady ad vances in the quantity, quality and variety of goods and services. Only government, the politics of coercion, causes a decline in the standard of living.

Moreover, the free market does not only benefit the young and the strong, as Charley Reese suggests, but the weak, the poor, and the discriminated. Contrary to popular be lief, capitalism is not a dog-eat-dog jungle where only the fittest surNive. As the clas sical economist David Ricardo demon strated, the market is characterized by com parative advantage, not just absolute advantage in the division of labor. There fore, opportunities abound for people of all abilities, talents, religions and races. The less fortunate may not earn a high wage, but they can and do benefit from the blessings of a technologically advanced capitalistic so ciety. Today practically everyone, rich and poor, enjoys the benefits ofelectrical power, the telephone, the automobile, television and radio, books and newspapers, and a myriad other goods and services. Such ev eryday products were available only to the wealthy less than a century ago.

A free society is by no means peIfect. People make mistakes, employers some times take advantage of workers , sometimes workers shortchange their employers, and salesmen may deceive the public. But the strength of the market is that bad business, deceptive practices, and shoddy merchan dise are constantly being overwhelmed by good business, accurate information, and quality products. On net balance, there is no substitute for the free-enterprise system. D 476 BOOKS Cliches of Politics edited by Mark Spangler The Foundation for Economic Education. 1994 • 314 pages. $15.95 paperback Reviewed by Robert Batemarco T here's much truth in the old saying that it's not so much what people don't know that hurts them, as what they know that just isn't so. Indeed, when things we know that aren't so are used to shape public policy, it hurts not only those who harbor the misin formation, but virtually everyone falling under the jurisdiction of such misguided policy. The Foundation for Economic Ed ucation counters such superficially plausible but fundamentally wrong-headed ideas in Cliches of Politics. Edited by Mark Span gler, it lists and refutes 83 economic fallacies which have proven to be leech-like both in their tenacious hold on the public mind and their proclivity to drain the lifeblood of our economic prosperity. While most of the 83 appear here for the first time, 27 "classic cliches" originally appeared in FEE's 1970 volume Cliches of Socialism.