In a FB discussion groups, someone once posed the following question:
- - -hm, i wonder how a marxist may question this..
“The key insight of Adam Smith's Wealth of Nations is misleadingly simple: if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.”
― Milton Friedman
My response was as follows:
Friedman attempted to make the case that free market capitalism organizes economic activity without coercion by first outlining how a simple market economy would work. (This simple economy consists of individuals and households where people make goods and services and exchange them among themselves. No exchange will occur unless both parties will benefit. If one party feels that they won’t benefit then no exchange will take place. Since people in this simple economy remain free to produce just for themselves they need not participate in any exchanges unless they feel confident that they will benefit. Therefore, assuming that everyone here is economically rational (in the usual economist’s sense), no exchanges will occur unless both parties will benefit and these exchanges will occur without any coercion.) From this Milton would go on to argue that the same principles would operate in the case of a free enterprise economy:
“As in [the] simple exchange model, so in the complex enterprise and money-exchange economy, cooperation is strictly individual and voluntary provided : (a) that enterprises are private, so that the ultimate contracting parties are individuals and (b) that individuals are effectively free to enter or not to enter into any particular exchange so that every exchange is strictly voluntary… ... .... Proviso (b) is ‘that individuals are effectively free to enter or not to enter into any articular exchange’, and it is held that with this proviso ‘every exchange is strictly voluntary’. A moment’s thought will show that this is not so. The proviso that is required to make every transaction strictly voluntary is not freedom not to enter into any particular exchange, but freedom not to enter into any exchange at all. This, and only this, was the proviso that proved the simple model to be voluntary and noncoercive; and nothing less than this would prove the complex model to voluntary and noncoercive. But Professor Friedman is clearly claiming that freedom not to enter into any particular exchange is enough: ‘The consumer is protected from coercion by the seller because of the presence of other sellers with whom he can deal.… The employee is protected from coercion by the employer because of other employers for whom he can work…."
The Canadian political philosopher C. B. Macpherson strenuously objected to this arguing that Friedman made an illicit jump from what would be the case for his hypothetical simple exchange economy to what would actually be the case in a capitalist economy.
In Macpherson’s words:
“He has moved from the simple economy of exchange between independent producers, to the capitalist economy, without mentioning the most important thing that distinguishes them. He mentions money instead of barter, and ‘enterprises which are intermediaries between individuals in their capacities as suppliers of services and as purchasers of goods’… as if money and merchants were what distinguished a capitalist economy from an economy of independent producers.”
Rather, according to Macpherson:
" What distinguishes the capitalist economy from the simple exchange economy is the separation of labor and capital, that is, the existence of a labor force without its own sufficient capital and therefore without a choice as to whether to put its labor in the market or not. Professor Friedman would agree that where there is no choice there is coercion. His attempted demonstration that capitalism coordinates without coercion therefore fails.”
Macpherson also pointed out that Friedman had conceded that under a market economy, coercion does exist in cases where monopolies exist because in such situations people may be lacking in choices concerning where they can purchase goods or services. But if that is the case, then how much more it must be the case that coercion does exist when we have an economy founded upon having a relatively small fraction of the population owning most capital, with the majority of people having little choice but to sell their labor to the owners of capital. In other words, under capitalism, the situation is very different from the hypothetical simple exchange economy. There, people can survive without having to enter into any exchanges, whereas, under capitalism people do have to enter into exchanges in the labor market with capitalists, if they wish to survive
Jim Farmelant http://independent.academia.edu/JimFarmelant http://www.foxymath.com Learn or Review Basic Math
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