A friend of mine has been asking me to explain why free market friends insist that the economy is not a “zero sum” game.\u00a0 To him, it seems as if anyone who makes money must be getting it from someone else, who then doesn’t have it.\u00a0 On his understanding of the situation, there are winners and losers, and people who wind up with more money are the winners.<\/p>\n
We live in a remote area at 4500 feet elevation.\u00a0 It can get quite cold, and there is no natural gas service underground.\u00a0 If you want to heat by burning gas, you have to buy propane.\u00a0 In our area, almost everyone has a large propane tank on their property, and has propane delivered once each month.\u00a0\u00a0 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.<\/p>\n
We have a wood stove in my home.\u00a0 We put it in last year, because the propane bills were killing us.\u00a0 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.\u00a0 (It looks like the wood stove will pay for itself by the end of this winter.)\u00a0 Basically, it costs about $150 for a really big pickup truck full of wood.\u00a0 Four of those did it for the season.\u00a0 The guys who delivered it are mostly tree-cutters themselves.\u00a0 They are hired to cut down trees, and they simply cut them up and take them to their lots.\u00a0 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.<\/p>\n
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.\u00a0 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).\u00a0 My back hurts, and my legs are sore.\u00a0 And I’ve only got, so far, about as much wood as 1 and 1\/2 pickup truck deliveries.\u00a0 So there’s plenty more work to be done.<\/p>\n
For a really entertaining time, come and watch as I try to hit a splitting wedge with a six pound sledge hammer.\u00a0 I have one eye that works, and have never had any depth perception…\u00a0 so it’s really dumb luck if I manage to make solid contact with the wedge.\u00a0\u00a0 My 11yr-old daughter comes out and watches sometimes….\u00a0 she’s not very good at pretending not to laugh.<\/p>\n
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.\u00a0 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.”\u00a0 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.\u00a0 And that doesn’t even count the money my brother-in-law spent buying a professional grade chainsaw.\u00a0\u00a0 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.\u00a0 But luckily for me, he considers the whole thing something of an adventure.<\/p>\n
So, what’s the point of all this?<\/p>\n
I pay for wood to be delivered, and it comes relatively cheaply and with minimal work remaining for me to do.\u00a0 The people who sell it to me make money, so they get value from the transaction.\u00a0 I get value, because I can spend my time doing something more economically productive than chopping wood, at which I am singularly unskilled.\u00a0 Or I can just kick back.\u00a0 Or some of both.<\/p>\n
The “zero sum” way of thinking doesn’t explain this transaction.\u00a0 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.\u00a0\u00a0\u00a0 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).\u00a0 I MAKE money by paying them to do it, if I can use that time to do something else of benefit to me.\u00a0 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.\u00a0 So they make more money, and so do I, and value<\/em> is created in the economy that wouldn’t be there if I just chopped my own wood.<\/p>\n 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.\u00a0 Every time someone becomes more productive, the entire society gets richer, because there is more value<\/em> available.\u00a0 When a lot of people become more productive, by a combination of capital investment, skill acquisition and greater efficiency, value is created<\/em>, which in a money-based economy means that there is simply more money to go around in the system.<\/p>\n This basic fact of economics was best explained by Adam Smith in “The Wealth of Nations.”\u00a0 You don’t want to read the original, unless you have insomnia.\u00a0 But here is a very entertaining introduction to it<\/a>.<\/p>\n 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.<\/p>\n It never has, or we’d still be living in log cabins and riding around in horse drawn wagons.<\/p>\nShare this:<\/h3>