It is no secret I have been critical of Michael Medver ("Michael Medved Gets It Wrong", "An Undivided Jerusalem, Except When It Isn't", "ObamaCare's Achilles Heel"), and for good reason (But see also "I'm Stunned" and "A First".). However, his recent book "The 5 Big Lies About American Business", cited in John Stossel's article "Myths About Capitalism" is entirely correct, at least in the broad truths. (I am working off excepts and summaries, so I want to qualify this well. His big points are correct, but not knowing the specifics, he may have made errors of which I am unaware.) After reading Stossel's review, I realized that Medved made one point I have insufficiently emphasized. In my writing ("Planning For Imperfection", "Fairness and the Free Market", "The Triumph of Good", "Greed Versus Evil", "Selling Yourself Cheap") I have described many of the advantages of capitalism, and I have even spoken of the advantages trade ("Beware Populist Deception", "Protectionism, "Protectionism Right and Left", "Deadly Cynicism") and the benefits of production ("Bad Economics Part 14", "Jobs, Jobs, Jobs, and More Jobs", "War Stimulates the Economy? Let's Nuke San Francisco!"), but, just like Medved, I managed to overlook a simple and obvious truth that ties trade and production, and makes nonsense of all the theories of "obscene profits" and "price gouging". ("Saving Us From Lower Prices", "Price Gouging", ""True" Prices", "Excuse Me?", "Misunderstanding Economics", "When Did We Become Liberals?", "D i c k Morris Gets His Economics Wrong Again" , "Put Your Money Where Your Mouth Is, Or The Logical Implications of Price Gouging Laws", "Capitalism and Its Consequences", "Moral For Me, But Not For Thee")

Let us start with Stossel explaining, and then quoting, Medved on the topic:

Medved's second myth is that when the rich get richer, the poor get poorer. This is the old zero-sum fallacy, which ignores that when two people engage in free exchange, both gain -- or they wouldn't have traded. It's what I call the double thank-you phenomenon. I understand why politicians and lawyers believe it: It's true in their world. But it's not true in business.

"If you believe that when the rich get richer, the poor get poorer, then you believe that creating wealth causes poverty, and you're an idiot," said Medved. "One of the things that I hate is this term 'obscene profits.' There are no obscene profits ... . (The current economic downturn shows) "that when the rich get poorer ... everybody gets poorer."

This is right as far as it goes, but, like my earlier posts, it misses a big point.

There is one basic truth about the free market many overlook, and that is that every transaction is voluntary. ("In Praise of Contracts ") This simple truth sounds inconsequential, but it actually leads to some significant realizations, as well as debunking any number of absurd theories.

However, before I begin to explain, let me point out that my theories only hold in a truly free market, that is a state where the government does nothing but protect individual rights by punishing force, theft and fraud. ("Negative and Positive Rights",  "Symmetry and Asymmetry in Government", "My Vision of Government", "My Vision of Government Part II") Once the government begins to set the terms of transactions, they are no longer completely voluntary and my rules no longer apply. Only when individuals are absolutely free to engage in mutually beneficial agreements do these rules apply completely. Once the government inserts itself, distortions arise, and exceptions appear, making my argument fail. So, please, do not bring up interventionist "mixed markets", part free and part controlled, and pretend they disprove my assertions, they are not what I am describing.

But, given a fully free market, we can agree that every exchange is voluntary, made on terms agreeable to both parties, and mutually beneficial to both parties. All of these are not mere assertions, but the inevitable consequences of a free market. As there is no one, governmental or private, who can force a transaction, all transaction are inevitably voluntary. And, as you will only agree if you get more than you give, then all trades must be mutually beneficial, or else they would not take place. And so we can say, under a free market, all trades are voluntary, mutually beneficial, and agreeable to both parties.

There is a second logical assertion about free markets. Under a free market all labor is productive.Before I go on, let me point out what I have in "Greed Versus Evil", labor is, by definition, something burdensome. If we enjoy it, it is not labor, even if it may pay benefits. Labor is only something we find unpleasant, either because of its innate nature, or because we must do it for a fixed time, on a schedule, or what have you. In some way labor makes itself unwelcome, if it is to be called labor. And so, logically, we only engage in labor if there is a benefit greater than the burden of labor. In addition, in any economy, we would only sacrifice goods if we would gain more in return, as humans logically sacrifice only if they expect a greater benefit ("Bad Economics Part 16"). As a consequence, we only engage in labor, in a free economy, if we expect to receive more from that labor than it costs us in toil and materials. (Note, we may err in our predictions and find we get less than expected, but we would then change course, we would not continue to produce less than we put into it voluntarily.)

Finally let me make a slightly more complicated point I made in "The Rubber Yardstick", money is not a good measure of wealth. let us ignore all the technical issues, and simply ask this: If you had no money but could have anything you wanted, would you be rich? And if you had all the money in the world, but no one would trade for it, would you not be poor? Likewise, goods are not in themselves a good measure of wealth, as we cannot easily tell their value. In truth, what we mean by "wealth" is the satisfaction individuals get from the goods they have. Yes, we use money as an indirect measure of that, and rightly so, as it is the best measure we have. But we need to keep in mind it is only an indirect measure of our true wealth, which is the satisfaction each individual receives from goods and services.

That last point is important, as I am going to argue that these truths prove that the free market must inevitably increase overall wealth. Not only that, but as collective wealth grows, it is also inevitable that every individual will see his wealth grow as well. So long as an individual is not completely incapable of learning from his mistakes, he will, over time see his wealth grow, along with that of the society as a whole.

The principle is simple. I will only produce something if I expect it to benefit me. I may judge wrong, but I will then change my plans until, eventually, I end up producing net satisfaction from my labor. I then will trade away the proceeds of my labor only if I expect a net benefit. Similarly the other party will do the same. As a result, we will both enjoy a net benefit. Again, mistakes are possible, but self-correcting. As those who best judge their wants and the wants of others get more resources, the system favors the creation of  satisfaction. And so, as a result, it is inevitable that the free market will not only increase collective satisfaction, but individual satisfaction.

And that ignores the fact that, by improving overall productivity the system also tends to increase the output of every worker, while simultaneously making the cost of everything lower.

Yes, it sounds simplistic, but it is true. One will only produce or trade if he benefits, and if he benefits, so does the other party. As a result, voluntary trade will always be beneficial, and wealth will always increase, it is the inevitable outcome of the free market.

However, once you introduce government, once you make exchanges involuntary, then the system breaks down and trades begin to take place which fail to be mutually beneficial, as well as beneficial trades failing to take place. But that is the consequence of government intervention, the free market does nothing of the kind.