Chapter 4 of Shawn Ritenour’s Foundations of Economics is the first in the book to focus on economics proper after the laying of much philosophical groundwork in the first three chapters. It also moves from the examination of actions individuals may take in isolation to the examination of actions that require social interaction.
Building on the fundamental insight that different individuals have different rankings of preferences, Ritenour explains how trade, or voluntary exchange, benefits all parties involved because each gives up something he values less in exchange for something he values more. Of course, some people have a change of heart after the transaction and regret their decision, but at the moment of exchange their situation is improving according to their own preferences.
Implications of the mutually beneficial nature of voluntary exchange include the recognition that coercive intervention to prevent such exchanges causes harm to both parties (again, by their own estimation at the moment of would-be exchange). Ritenour also illustrates the helpful function performed by middlemen who reduce “search costs” of people who wish to engage in exchange but who do not know where to find trading partners.
Because many trades are not conducted on an all-or-nothing basis, we need to understand how people make decisions regarding quantities of trade goods. Referring to the law of marginal utility, Ritenour illustrates this concept by postulating a trade between a producer of mangoes and a producer of beef, showing that a trade of a certain quantity will take place only if each party will receive a greater marginal utility than it gives up.
Ritenour proceeds to describe the division of labor and its fundamental necessity for human prosperity and the fulfillment of the cultural mandate of Genesis 1. The division of labor results from the divinely created differences in the various regions of the world, the unique capacities of each individual, and the different access to capital goods each person has. By specializing in one or, at most, a few tasks, a person becomes a much more efficient producer, and he can exchange his surplus goods for the other things he desires that he does not produce himself. Even those who are lacking in ability and capital can participate in the division of labor because of the law of “comparative advantage,” according to which each person has something he can do at a lower opportunity cost than anyone else.
The final section of the chapter focuses on the institution of private property. Ritenour argues that private property is both essential to human prosperity and that its legitimacy is assumed in and implied by the Christian religion. Without private property, exchange cannot take place; one cannot legitimately trade what one does not own. In such a situation, the division of labor cannot develop. This point is illustrated (not proved–theory proves it) by a chart showing that countries with legal regimes defending property rights are far more prosperous than those lacking such regimes.
Ritenour’s case for a Christian endorsement of private property runs about nine pages and includes arguments from scripture, Church history, and natural law. I was familiar with many of his points (which I believe to be valid) but also encountered some ideas that were new to me.
I plan to pick up the pace on these posts because I’m scheduled to chair a conference panel dealing with this book in June, and I’d like to finish it before then. So expect to see at least one post a week (and perhaps two) on this work through the end of May.