Friday, September 19, 2014

Quid pro quo

Something for something or this for that. This is what we all think of when we here the Latin phrase "Quid pro quo". It is most used when talking about markets and the free exchange of goods by free individuals. Where do you think that the English pound got its common (slang) name of quid from?

But what are we really saying? The American Heritage Dictionary now defines quid pro quo as "an equal exchange or substitution". This implies that we have a legitimate exchange that for all purposes is effectively equal. The word substitution associated with quid pro quo comes from the 1700s when apothecaries used the term to describe the substitution of one ingredient for another which suggested a functional equivalent between the two.

Does this really work in the market? Not as I can see because a legitimate exchange of goods between individuals is defined such that each person who is involved in the exchange is "made better off than before and not just as well off."

This type of muddy thinking places blinders on people as to the mutual benefits created by unequal exchanges.

Remember that in the market, the people involved in the exchanges are doing so voluntarily.

And to quote Gary M. Galles, professor of economics at Peperdine University and author of Faulty Premises, Faulty Policies (2014) and Apostle of Peace (2013): "Viewing voluntary exchanges as involving equal values leaves people blind to the mutual benefits created by even “unequal” exchanges. This mistake has also fathered a cornucopia of damaging restrictions on voluntary arrangements. It defames voluntary market arrangements. And it falsely inflates coercive government arrangements by ignoring the harm inherently imposed on unwilling parties when an outside authority presumes to know more about the value of the items exchanged than do the parties who agreed to the exchange in the first place." (Remember that most government is in power because of involuntary arrangements.)

"The misunderstanding created by the idea of "equal value" produces the opposite of a beneficial quid pro quo from society’s perspective: It destroys vast amounts of wealth in exchange for enabling theft."


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