Friday, July 27, 2012

"I give back!" - What? Did you steal it?

"I give back"

Give back. I often hear this expression, either from those that state it with a sense of personal pride, or as a stern petition from others who feel that the person that becomes successful does so at the "expense" of others. What exactly is one expected to "give back"? To whom?

Not only is the expression loaded with ignorance in economics, it also suggests something more offensive: That people who gather wealth do so in a way akin to taking, or stealing. But not earning, it seems.

The reality is that most rich people do obtain their wealth entirely through voluntary exchange. Unless the person is a true crook or a criminal, the only way he or she can create and accumulate wealth is by trading goods or services with people that want them. It is by creating value for others that one becomes wealthy, not by "taking." The ignorance behind the expression "you should give back" stems from a total misunderstanding of how trade and production works. It also stems from a misunderstanding of what is wealth. For many, wealth is money, not the stuff that is exchanged for money; meaning, the person that obtained the good or service is not wealthier, because he's out the money. So from this unbalanced view, some conclude that the person that obtains the money did so by taking it from fools that receive trinkets in return.

How does a person become wealthier through simple exchange? The answer is that he or she becomes wealthier by making several exchanges with many trading partners. If a person can offer a number of goods to a number of people that want those goods, those persons will trade with him or her:

Through higher production, a person can improve his chance to trade with more people for what they offer in exchange, which in a modern economy will be money. As you can see in the next image, the producer of the goods (those very desirable triangles) exchanges the goods with the different participants for what they offer in return, which is the bags of coins. Each customer has what each wanted, which is the good (the triangle), whereas the producer has the bags of money.

To think that the customers are now poorer because they are out their money is to ignore the fact that a) they exchanged a good (money) they valued less for b) a good (the triangle) they valued more. They are now better off than before. Think of the triangles as being cool high definition TVs, or iPads, or cans of tuna.

So, what exactly is there to "give back"? The producer did not engage in stealing or fraud; the customers are now in possession of a good of higher value. Why then should the producer be compelled to "give back"?

Again, the reason is because people confuse wealth and money. Since money can be exchanged for almost all goods, it becomes attractive to think that the person holding the money is in a more advantageous position than the customers who enjoy the goods. But this is nothing more than a moralistic judgment, as money only has value as far as people value it - there's nothing intrinsic about the value of money. Tomorrow, people may decide to use bubblegum as a medium of exchange if they so desired it, rendering current money worthless. The same goes with the apparent power of the possessor of money: His "power" is indeed only apparent, as it goes so far as people value the money.

So, to conclude: A person that engages in honest exchange of produced goods for money is creating value, and by extension, creating wealth, both for him or her and for the other people that choose to trade with him or her. As there's nothing "taken" from anybody, then the person that exchanged the goods for money does not have to "give back" anything.

1 comment:

  1. Nice example!!! Hopefully will help to see the truth to those always telling you "You should give back" Entrepreneurs help the economy to grow and give us what we want. Example APPLE and the Greatest Mind of Steve Jobs. I think it is a fair trade my money for his IPOD.


Please be courteous when posting. Only registered Google users can post.