Friday, August 31, 2012

Free Enterprise


"The most important single central fact about a free market is that no exchange takes place unless both parties benefit." Milton Friedman

Wealth creation is not a zero sum game. People who get rich do so by providing a good or service that other people want and are willing to exchange something of value for. In early Mesopotania it was those people who discovered that they could collect certain types of grain and cultivate those rather than collecting them from the wild. By cultivating they were able to grow more than they might have been able to collect in the traditional hunter gatherer model. Now by inventing "Farming" they were able to produce a surplus which they then could trade for something else they wanted. Others individuals could grow domesticated animals which could be traded for grain. Once the basics of food were covered other specialties began to emerge. The potter, the clothier, the tanner, the armorer all provided a service or product people could trade for grain or meat. As societies developed they were organized around this simple  system. As new needs arose someone with a new idea would strive to meet that need. In every case the exchange was mutual. If someone wanted a better bow, or sword or pot or clothes, another was there to provide it. Housing developed and with it builders. Bronze was invented and with it came founderies. Every business continued to innovate and improve their product or service. New ideas became new products. Eventually fiat money was invented as a means to exchange which improved on the barter system and commodity money. The shekel was originally a measure of weight of an amount of grain. People gained wealth (money) by providing products or services. People with no means of exchange used their labor to gain the products they needed.
The fallacy that the rich get richer and the poor get poorer assumes that you have nothing of value or that the rich have taken from you. If a farmer produces grain to sell by his work and sweat, how does that make you poorer. If a potter digs the clay, throws the pot sells, the pot and uses the money to buy grain, build a house or hire additional help to make more pots how are you worse off. He is better off by his work but you are no worse off. He has created value and increased his wealth. You have not, so your wealth is the same. Free enterprise allows for both.

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