Cooperation under the division of labour

Ludwig von Mises defines the market as follows:

The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of the actions of the various individuals cooperating under the division of labor. The forces determining the –continually changing–state of the market are the value judgments of these individuals and their actions as directed by these value judgments. The state of the market at any instant is the price structure, i.e., the totality of the exchange ratios as established by the interaction of those eager to buy and those eager to sell. There is nothing inhuman or mystical with regard to the market. The market process is entirely a resultant of human actions. Every market phenomenon can be traced back to definite choices of the members of the market society.

In this definition the market process is all about cooperation – yet most people (including economists) would say that the market process is about competition. That view is incorrect – we either cooperate in order to compete or we compete in order to cooperate.

This conceptual error has real consequences as Paul Ruben explains in the WSJ:

Consider the most basic economic unit, the transaction. A transaction is cooperative because both parties gain from a voluntary exchange. There is competition in markets, but it’s actually competition for the right to cooperate. Firms must compete for the privilege of selling to consumers—for the right to cooperate with consumers. Workers compete for the right to cooperate with employers. Competition matters because it ensures that the most efficient players will gain the right to cooperate on the best terms available. But competition plays a supporting role, while cooperation makes markets thrive.

Here’s an example. Wal-Mart comes to town and several small businesses disappear. How do we represent that event? If we think in competitive terms, we say, “Wal-Mart has outcompeted small firms and driven them out of business.” If we take a cooperative view of the same event, we say, “Wal-Mart has done a better job of cooperating with customers by selling them things on better terms, and the small firms were not able to cooperate as well.” Same facts, but a very different emotional reaction.

Similarly, we might say that a poor person has been outcompeted in the market. Or we might say that a poor person cannot successfully cooperate with others because he lacks valuable skills and has little to sell.

Most government intervention in the economy operates to prohibit or inhibit cooperation.

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11 Responses to Cooperation under the division of labour

  1. Brett_McS

    So true. Mises’ writings are logical theorems in words.

    Fortunately for me one of the first books on economics I read was Human Action (the (deliberately) crappy original edition, not the new one). Subsequently, by the second or third chapter of the more usual economics textbook fair I was mentally ticking off the unwarranted assumptions used as the basis of standard economic thinking – the main one being that interpersonal value judgements can be compared and ranked – in order to be able to introduce mathematics into the syllabus. Russ Roberts of the EconTalk podcast has a similar observation: Economics is more history than science.

  2. .

    I read Human Action online at mises.org

    Unsure of the edition but it is the unabridged 1949 version.

    Make yourself read this if you haven’t yet.

    It’s only 1000 or so pages long, and it is easier to read than Tolkein.

  3. Toiling Mass

    Social Justice dictates that, should a strong man and a weak man both apply for a job, the stronger man should have his arm broken and everyone live off the less generous fruits of the weaker mans labours. The stronger man never gets a job and starves – on account of his existing advantage in getting work.

  4. Noddy

    >Make yourself read this if you haven’t yet.
    It’s only 1000 or so pages long, and it is easier to read than Tolkein.<

    We live in a strange world… You might find the following link of value and please note… it was written about 1918 and only SIX pages.

    http://198.66.229.35/resources/resources/the_delusion_of_super-production_douglas.pdf

    Now you might understand why the car industry and others of importance cannot compete in today's world. Now doubt it will be debunked without reason because it exposes the 'witchcraft' of economics as taught in our universities.

  5. Tel

    So you are saying that a cartel market is just the same as a competitive market, because after all it’s really about cooperation.

  6. Tel

    Most government intervention in the economy operates to prohibit or inhibit cooperation.

    Hmmm, I disagree on that. Governments create structured forms of cooperation and despise free-flowing, flexible and unstructured forms of cooperation. Neither of these is more or less cooperative than the other, they simply are different ways of organizing the same people. I would go one further and challenge anyone to come up with an objective metric of the amount of “cooperation” happening in any society.

    Highly structured systems of cooperation are more resilient to external shocks, but they are also less adaptive to a changing world. On the whole, given the pace of technological change, adaptivity tends to be the winner.

  7. .

    Sorry Noddy, but that is nonsense.

    Historical economic data shows that to be the case.

    It has nothing to do with cars.

  8. Johno

    Human Action certainly requires an effort to finish and comprehend, but it is worth the effort. It took me a couple of goes before I really got to understand what he was on about.

    I started reading it after I had put myself through the horror of trying to understand the standard model taught in virtually every Australian university. The standard model gets a few key points right, which helps to explain its longevity, but it assumes away much that is both important and interesting about real world behaviour. Human Action provides a much better understanding of real world behaviour.

    Another major failing of the standard model is that it ignores government intervention. Based on its flawed model of how markets work, it sets out a long list of so-called ‘market failures’. These failures are used to justify government intervention. What it fails to do is examine how government should undertake this intervention, the economic problems with government intervention and a comparison with market processes as an alternative.

    This failure also has real world consequences. Australian governments currently spend around $250 billion on delivering services such as health, education, transport, energy, communication, recreation and culture. This is around 15 per cent of all spending in Australia. Spending on these services is growing faster than the tax base (the Australian economy) needed to fund this spending. Continued spending on these services at the current rate is unsustainable.

    Most economist have little of value to contribute to this issue because they lack the conceptual tools to understand the underlying problems of government intervention. Much of their advice is useless and, consequentially,ignored.

    Mises, along with Hayek, provide detailed insights about why government delivery is inferior to market delivery. Simpily making government deliver more efficient will not achieve much. Government has to be gotten out of the way in health, education, transport, communication, energy etc etc

  9. Brett_McS

    Well said Johno. Also, “Market Failure” is defined as not meeting an impossible, theoretical standard based on the (ridiculous) standard model of perfect competition which assumes perfect knowledge is possible (Hayek dealt with this). Most examples of so-called “market failure” are not examples of failure at all. They are but excuses for government intervention – which then proceeds to make things worse.

    James Buchanan looked into the real, and serious, problem of government failure – Public Choice, or The Economics of Politics as Arthur Seldon more accurately called it. Government Failure is the real problem.

  10. Watching It Unfold

    I believe the market is about Trading – without the motivation to trade, there is no market, nothing. The Left and its band of brothers/sisters cannot exist without the results of Trade. The Left behaves at its worst when wealth is abundant…its all about Trading (and cooperation comes from the motivation to trade in things)….at least that’s how it seems to me.

  11. RMR

    Tel, surely you see that in normal business you cooperate with your customers and compete with alternate suppliers. In cartels, you compete with customers and cooperate with alternate suppliers, a complete reversal in the fundamental operating logic.

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