Economics is the science of the efficient allocation of resources. Through free exchange, all resources—material and otherwise—end up in the hands of those who value them the most, and those who value them the most will generally put them to the best use.
The more exchanges that are made, the wealthier everyone becomes, because value is velocitized.
This principle is explained in my book Killing Sacred Cows, which says:
“If I have a book and you have $10, and we mutually decide to exchange my book for your $10, what were the book and the $10 worth to you? What were the book and the $10 worth to me?
“Most people answer that the book was worth $10 to both you and me. This is exactly wrong. We only give up something in an exchange when we value what we’re receiving more than we value what we’re giving up.
“Hence, there is no way to quantify an exact amount that the book or the $10 was worth to you or me. All we can conclusively say is that to you, the book was worth more than $10 and the $10 was worth less than the book; to me the book was worth less than $10 and the $10 was worth more than the book.
“We both walk away wealthier than before we made the transaction because we both have something that is worth more to us than before.
“We only exchange when others have something that we value more than what we currently have. We never trade like value for like value because we have no incentive to trade like for like. We trade what we have for what we actually want more.
“In a free market, the final sales price of any object is always an amount that the seller and the buyer both disagree that the object is worth. Therefore, exchange can only occur in an atmosphere of disagreement.”
This principle alone, when properly understood, overcomes the fallacy of scarcity. Because value is in people, not in things, even if it is true that material resources are finite, people can exchange the same finite material over and over again to create unlimited wealth.
Every time we make a productive exchange, we are wealthier. Thus, according to this principle, everyone can be wealthy even if there’s a finite resource “pie” from which we all share.
Garrett Gunderson is an entrepreneur, financial coach, the founder of Freedom FastTrack, and the primary author of the New York Times bestseller Killing Sacred Cows: Overcoming the Financial Myths that are Destroying Your Prosperity.
Garrett loves inspiring others to turn their potential into production. He has dedicated his life to living and teaching a unique concept known as Soul Purpose that reveals how anyone can live a more prosperous and rewarding life.
As a finance and business productivity coach, Garrett instructs both large and small groups of business owners and financial service professionals nationwide.