Sorts of Deals – Econlib

A deal is an agreement to exchange something for some consideration, but different sorts of deals exist. A deal is not necessarily a free exchange and a free exchange is not necessarily a free-market exchange.

The gold standard of all deals is a free-market exchange: a voluntary exchange where alternative demanders and suppliers exist. The free market does not need to be perfectly competitive, but alternatives are available at costs that are not too high.

This qualification is illustrated by the dehydrated traveler lost in the desert who arrives at an oasis and is offered a glass of water for $10,000. “And I have a POS device for your credit card.” Whether the traveler accepts or declines, and whether the oasis owner is led or not to lower his price to get a deal (“better $500 than my customer dropping dead”), we still have a free exchange, because either party is free to accept or decline the trade; but it is not a free-market exchange.

Many people are uncomfortable with this extreme case. A free exchange in this sense may be unjust. Extreme cases do not necessarily provide good tests of a theory. Moreover, an unjust exchange may still be better for the “weakest” party than a diktat forbidding him to do what is still in his best interest, as judged by himself, compared to no exchange (see Michael Munger, “What Does ‘Voluntary’ Actually Mean?” The Daily Economy, June 25, 2019). In a free society, such exchanges with limited alternatives would be rare anyway—as can be estimated from their frequency of occurrence in more-free-than-unfree countries and mostly-unfree ones.

And then, there are deals that are unambiguously unfree and unjust, at least for some of the parties involved. A free exchange requires that a party who declines be not subject to punishment, that is, to the active removal of a previously recognized or exercised right or liberty. Fining or jailing a smuggler can hardly be called a free exchange between the smuggler and the punisher. We may call this sort of exchange a Berlin Wall deal: if you jump the wall, you will be shot; if you stay on our side, there is no shooting.

Close to the Berlin Wall deal, we encounter the kidnapper’s deal, which is not a free exchange either. You are kidnapped and imprisoned. Your kidnapper offers you a deal: a ransom of $100,000 or death. If you accept, it is an exchange (“a deal”) in the sense that both parties benefit relative to the new, coerced starting point imposed by the kidnapper, but it is not a free exchange considering the whole situation.

Note that a deal can be a one-sided free exchange: free for one party, who is not coerced by a third party (say, his government), and unfree for the other contracting party, who is coerced or coercively restricted by another third party (say, by his own government). “I made a good deal on my Lenovo ThinkPad” unambiguously denotes a free and even free-market exchange for me, at least if I did not have to pay a cut (a tariff) to my own government, regardless of whether the seller is coerced by his own government. If Lenovo were not a private company (which it mostly is) or were not shackled to a certain extent by the Chinese Leviathan (which it certainly is), the free purchaser, on his side, would still be making a free-market exchange. A theory or classification that deemed any exchange unfree because some other individuals in the world are unfree would not be very useful. It is not because North Koreans are not free to participate in the world dating market that this market is unfree for Americans—even if the wider the free market, the better everyone is.

Another sort of deal, which includes elements of the Berlin Wall deal and the kidnapper’s deal, is the rulers’ deal, made by rulers on behalf of their subjects and imposed on them: “Here is your deal. Enjoy, or else!” Two rulers striking a rulers’ deal benefit or think they will benefit; otherwise, one of them would decline. Obviously, it is not necessarily true for all (and perhaps most of) their subjects. At the limit, imagine two slave masters striking a deal involving their slaves: “Your slaves shall work for me in such or such circumstances, in return for my slaves working for you in such or such circumstances.” For example, your subjects will work to produce stuff for (export stuff to) my subjects, while my subjects will work to produce stuff for (export stuff to) your subjects. (It is too easy to claim that being a slave of the majority is not slavery.)

These categories are not airtight and do not capture all the complexities of the social world. They do not, for example, account for conventional or accepted rules, à la de Jasay or à la Buchanan, but I suggest they are a first step in understanding and evaluating social and political realities—including “trade deals.”

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