by Bill Bonner, International Man:
Win-win deals get people more of what they want. Win-lose deals – usually imposed by government – bring them less. The few (the insiders) use government to exploit the many (the rest of us).
Win-lose deals also depress economic progress for everybody. Partly, this happens for an obvious reason.
Dropping the atom bomb on Hiroshima was a technical milestone, but not the kind of progress we’re talking about. Progress only makes sense if it means that people are able to get more of what they want.
By definition, when a person is forced into a bad deal, he gets less of what he wants.
Progress is also a learning process. You try something. You see what works and what doesn’t. As people experiment in this way, they learn… and the economy accumulates knowledge and wealth.
They learn to get to work in the morning, for example… to say please and thank you… to save their money… and to invest it wisely.
Win-lose deals interrupt the learning process. That’s why welfare programs fail: People get money without learning.
Temptation to Cheat
That is the real reason the Soviet Union failed, too.
Consumers were forced to buy whatever shoddy products were made available to them; producers had no way to learn how to make good ones.
Toward the end, products available for purchase in the Soviet Union were worth less than the raw materials and labor that went into them.
What do you need for win-win deals?
1) People must be free to make choices with their time and money.
2) They must have money they can trust.
3) They must trust each other to respect their rights and property.
These things don’t happen smoothly and without interruption.
Progress is cyclical. Win-win deals add wealth and move society forward. But they depend on trust. And as trust increases, so does the temptation to cheat. When everyone leaves his liquor cabinet open, for example, who can resist having a drink?
Then trust declines. Barriers go up. Costs increase. Win-win gives way to win-lose. Progress goes into reverse.
Money You Could Trust
The invention of real money – based on gold – gave a boost to win-win deals… and to progress.
It was money you could trust.
If you are paid a gold coin for a day’s labor, you don’t have to trust the person who pays you. You don’t have to wonder if he has the money in his account to cover his check… or what will happen to his money in the future.
You don’t have to trust him; you put your trust in gold. This allows you to do transactions more freely – and speeds up economic progress.
Gold-backed dollars were trustworthy for nearly 200 years (setting aside Lincoln’s phony “greenbacks”).
People became so confident in the integrity of the dollar that they hardly noticed when the gold backing was removed (on March 19, 1968, when President Johnson signed a bill eliminating the “gold cover” for Federal Reserve notes).
But that’s the way it works: The more trusting people become, the easier it is to rip them off.