A friend of mine has been asking me to explain why free market friends insist that the economy is not a “zero sum” game. To him, it seems as if anyone who makes money must be getting it from someone else, who then doesn’t have it. On his understanding of the situation, there are winners and losers, and people who wind up with more money are the winners.
We live in a remote area at 4500 feet elevation. It can get quite cold, and there is no natural gas service underground. If you want to heat by burning gas, you have to buy propane. In our area, almost everyone has a large propane tank on their property, and has propane delivered once each month. It’s expensive, compared to natural gas, and with a large house in cold weather you can spend a lot of money heating the place.
We have a wood stove in my home. We put it in last year, because the propane bills were killing us. Last year, instead of spending up to $500 per month on propane bills during the coldest weather, we heated our home for the entire winter on about $600 worth of wood, which we had delivered. (It looks like the wood stove will pay for itself by the end of this winter.) Basically, it costs about $150 for a really big pickup truck full of wood. Four of those did it for the season. The guys who delivered it are mostly tree-cutters themselves. They are hired to cut down trees, and they simply cut them up and take them to their lots. They let the wood sit there for several months or a year to “season” it, then they cut it up into wood-stove size pieces with chainsaws and power-splitters, and they sell it.
So, this year, I thought I’d really save some money, and instead of having the wood delivered, I’d go get it in the national forest, where the forest service very kindly sells low cost permits for people to pick up wood that the forest service people have cut down already, and (with some help from a kindly brother-in-law with a trailer and a chainsaw) I’d cut it up myself. So far, I’d say I’ve spent about 10-12 hours of time messing with it (my brother-in-law has spent even more). My back hurts, and my legs are sore. And I’ve only got, so far, about as much wood as 1 and 1/2 pickup truck deliveries. So there’s plenty more work to be done.
For a really entertaining time, come and watch as I try to hit a splitting wedge with a six pound sledge hammer. I have one eye that works, and have never had any depth perception… so it’s really dumb luck if I manage to make solid contact with the wedge. My 11yr-old daughter comes out and watches sometimes…. she’s not very good at pretending not to laugh.
If you are forming the impression that, on an hourly basis, this attempt at economizing isn’t paying for itself, you’ve got the right idea. You may sing the glories of self-reliance, you may tell me I needed the exercise anyway, but the fact is that my brother-in-law and I are making not much more than minimum wage for doing this, in terms of the money we’ve “saved.” Since I can make money plying my trade, at a considerably higher rate, and work is generally available when I want it, I’m losing money trying to save money. And that doesn’t even count the money my brother-in-law spent buying a professional grade chainsaw. He’s a lawyer, which means he’s used to making enough money in a couple of hours to buy my whole season’s worth of wood. But luckily for me, he considers the whole thing something of an adventure.
So, what’s the point of all this?
I pay for wood to be delivered, and it comes relatively cheaply and with minimal work remaining for me to do. The people who sell it to me make money, so they get value from the transaction. I get value, because I can spend my time doing something more economically productive than chopping wood, at which I am singularly unskilled. Or I can just kick back. Or some of both.
The “zero sum” way of thinking doesn’t explain this transaction. The choice is not between one person collecting and chopping wood for himself (me) or someone else doing it the same way I would do it, but whom I have to pay. The choice is between an unskilled and ill-equipped person doing it (me) or a skilled and well-equipped person doing it (the people I pay). I MAKE money by paying them to do it, if I can use that time to do something else of benefit to me. They make money because of their skills and investment in equipment, which allows them to do efficiently what I would have to do very slowly and inefficiently. So they make more money, and so do I, and value is created in the economy that wouldn’t be there if I just chopped my own wood.
Even if we take money out of the equation, it’s clear that everyone isn’t equally skilled and well-equipped to do everything, and so even in a barter economy there is not a “zero sum” of net economic value in the society. Every time someone becomes more productive, the entire society gets richer, because there is more value available. When a lot of people become more productive, by a combination of capital investment, skill acquisition and greater efficiency, value is created, which in a money-based economy means that there is simply more money to go around in the system.
This basic fact of economics was best explained by Adam Smith in “The Wealth of Nations.” You don’t want to read the original, unless you have insomnia. But here is a very entertaining introduction to it.
In a more or less free market, and even in a mixed economy like what we have now (somewhat free, somewhat regulated), “zero sum” thinking just doesn’t reflect reality.
It never has, or we’d still be living in log cabins and riding around in horse drawn wagons.