The Market Miracle | Mises Institute

In an economy, value is created from a substitution of less-preferable circumstances for more preferable circumstances. Individuals structure their actions and organize amongst themselves in a manner by which they can achieve desired goals. The free market often leads to prosperity precisely because it facilitates the value creation process rather than impeding it.

Individuals can create value for themselves by engaging in autistic exchange. Autistic exchange refers to actions without reference to other people. For example, choosing to run on a treadmill entails substituting leisure and expended energy for the benefits of exercise. If one prefers the benefits of exercise over leisure and expended energy, then he will opt to make the exchange and act accordingly. On the other hand, if he did not value the perceived benefits more than leisure, then he would not opt to act in such a manner. The same is true for choosing to pick fruits for consumption for an hour or opting to rest for an hour. If the exchange is worthwhile, one will exchange potential leisure for the ability to possess and consume fruits. However, there are inherent limitations regarding what one may achieve alone, and so interpersonal cooperation is required to achieve more complex goals.

Individuals in a society rarely produce everything they need or want themselves. Instead, they engage in trade and use a medium of exchange to facilitate trades. Autistic exchange requires an individual to contemplate that an act will create value for him, but voluntary interpersonal exchange requires that two or more parties in a transaction believe that they will benefit from making a deal. If one of the parties believes that they will be worse off, they will not partake in the exchange in the absence of coercion. Since trade allows one to acquire a more preferable set of circumstances than he may achieve alone, it makes sense for the individual to participate in a market economy and trade with others. As long as these interactions remain voluntary, mutually-beneficial exchanges will allow all parties to acquire more value than they would be able to produce alone.

Businesses are a particular feature of successful economies. If the market requisites of private property and voluntary transactions are present, businesses engage in systematic value creation. There are a variety of businesses, but all businesses strive to use factors of production and use them to generate profit. Factors of production are acquired for their respective costs. A business tries to combine, transform, modify or merely resell the factors of production for more than they incurred in cost. If there are willing buyers, then the business generates revenue. If revenues exceed costs, then profit is generated. With the use of prices, businesses facilitate processes that generate value and earn profit as a result. If they did not generate value, they would not find willing buyers and would instead incur losses on their suboptimal usage of their factors of production.

Prosperity, though, is not guaranteed. Since the inception of human history, coercion has often been substituted for voluntary exchange. If nobody wants to trade with you, then force can be used to seize what is demanded. It is even better if the usage of force is institutionalized. When arbitrary rules are put in place of market conditions, mutually-beneficial exchanges occur less frequently. Often, extractive exchanges where only one party benefits become the norm. Value-destructive exchanges proliferate within society, and hard work is undone.

The free market facilitates mutually-beneficial exchanges that create wealth where it would not otherwise exist. The more these exchanges are impeded, the possibility to organize the factors of production efficiently is eroded as well. The market miracle can only exist under certain conditions. It is important that those conditions are preserved as much as they can be.