<p>First of all, there is no need to believe any economic dogma. The real world is usually more complicated than these stories. If anyone can convince me of something with a two minute anecdote, that was probably not an important aspect of my world view, and I should probably not engage in setting such policy. (E.g. via voting for the person who tells the same anecdote.) </p>

<p>The statement that voluntary exchange is mutually beneficial relies on the assumption that both parties are rational and well-informed. If the exchange was not mutually beneficial, the one who is losing via the exchange would just say "no, thank you". Hence literally all voluntary exchange is mutually beneficial (so long as the parties are rational and well-informed). This does not mean that the situation voluntary exchange leads to is optimal, just that it is better than having no market at all.</p>

<hr>

<p>Some further remarks on taxation:</p>

<p>Deadweight loss is indeed bad. (By the way what you are describing is comparative advantage, not deadweight gain, as you yourself noted correctly in the tags.) However taxation is not the only thing that can cause  market failure, which is when the free market leads to a suboptimal outcome. For example market power (monopoly, oligopoly, monopsony, etc.) may also result in deadweight loss.</p>

<p>Unregulated externalities (e.g. pollution) may cause harm, and in this case taxation (or a proper market for the externalities) can actually improve everyone's situation.</p>

<p>Underfinanced public goods (e.g. roads) may also mean market failure. Voluntary financing usually leads to underfinancing, hence taxes (or some revenue mechanism) are needed.</p>

<p>So taxation, while it does have downsides, is not the devil. It may do more harm than good and it may do more good than harm, it all boils down to the details. </p>

CC BY-SA 4.0
2019-09-18T01:24:24.177Z
Thank you for your time to answer my question :)
Appguy1
CC BY-SA 4.0
2019-09-16T07:34:59.013Z
2019-09-18T05:53:33.283Z
2019-09-18T05:53:33.283Z
Giskard
<p>The other day I was having a debate with a supporter of high taxes.  I decided to argue against this by explaining the concept of the deadweight loss of taxation.  In order to do so, I started with the following example, to explain the deadweight gain of trade:</p>

<p><em>Bob and Sam live next door. Bob can mow his lawn in 4 hours, and clean his gutters in 2 hours.  Sam is the other way around:  He can mow his lawn in 2 hours and clean his gutters in 4.  If Bob cleans Sams gutters in exchange for Sam mowing his lawn, they both save 2 hours.</em></p>

<p>My friend replied: "I understand the mathematics, and don't dispute that in your example both people would be better off.  But is there any evidence that this works in the real world?  Perhaps there is some unforeseen factor that causes voluntary exchange to not be mutually beneficial."</p>

<p>This question left me momentarily stumped, because I had always found the concept self evident and did not have any obvious examples at hand.</p>

<p>Improvising, I tried using the example of China and the USA both benefiting from trading with each other (my thinking was that this was a more contemporary form of Ricardo's original wheat example).  However this caused my friend to object on grounds of geopolitical issues.  So I am hoping to find a better example, that does not raise other issues.</p>

<p>Therefore I wanted to ask:  Can anyone suggest some unambiguous, real world (ie non-hypothetical) evidence of the mutual benefits of voluntary exchange?  If this could relate to exchange between individuals rather than countries I believe this would make the case more clearly.</p>

CC BY-SA 4.0
2019-09-16T07:44:46.817Z
Employment (time for money) and retail purchasing (money for goods) are commonplace examples.
H2ONaCl
CC BY-SA 4.0
2019-09-16T08:38:57.147Z
Taxes help people internalize negative externalities (like the answer below). They also serve the purpose of income/wealth redistribution.
Art
CC BY-SA 4.0
2019-09-18T01:24:41.373Z
Thanks all for your replies to my question :)
Appguy1
<empirical-evidence><consumer-surplus><producer-surplus><comparative-advantage>
Real world evidence that voluntary exchange is mutually beneficial?
Appguy1
# Real world evidence that voluntary exchange is mutually beneficial?

(Asked by: username_0 on 2019-09-16)

The other day I was having a debate with a supporter of high taxes. I decided to argue against this by explaining the concept of the deadweight loss of taxation. In order to do so, I started with the following example, to explain the deadweight gain of trade:

*Bob and Sam live next door. Bob can mow his lawn in 4 hours, and clean his gutters in 2 hours. Sam is the other way around: He can mow his lawn in 2 hours and clean his gutters in 4. If Bob cleans Sams gutters in exchange for Sam mowing his lawn, they both save 2 hours.*

My friend replied: "I understand the mathematics, and don't dispute that in your example both people would be better off. But is there any evidence that this works in the real world? Perhaps there is some unforeseen factor that causes voluntary exchange to not be mutually beneficial."

This question left me momentarily stumped, because I had always found the concept self evident and did not have any obvious examples at hand.

Improvising, I tried using the example of China and the USA both benefiting from trading with each other (my thinking was that this was a more contemporary form of Ricardo's original wheat example). However this caused my friend to object on grounds of geopolitical issues. So I am hoping to find a better example, that does not raise other issues.

Therefore I wanted to ask: Can anyone suggest some unambiguous, real world (ie non-hypothetical) evidence of the mutual benefits of voluntary exchange? If this could relate to exchange between individuals rather than countries I believe this would make the case more clearly.

**Tags:** empirical-evidence, consumer-surplus, producer-surplus, comparative-advantage
> **Comments:**
> **username_1**: Employment (time for money) and retail purchasing (money for goods) are commonplace examples.  
> **username_2**: Taxes help people internalize negative externalities (like the answer below). They also serve the purpose of income/wealth redistribution.  
> **username_0**: Thanks all for your replies to my question :)  

---

## 1 answers

### Answer by username_3 on 2019-09-16. Score: 2 | Accepted answer

First of all, there is no need to believe any economic dogma. The real world is usually more complicated than these stories. If anyone can convince me of something with a two minute anecdote, that was probably not an important aspect of my world view, and I should probably not engage in setting such policy. (E.g. via voting for the person who tells the same anecdote.)

The statement that voluntary exchange is mutually beneficial relies on the assumption that both parties are rational and well-informed. If the exchange was not mutually beneficial, the one who is losing via the exchange would just say "no, thank you". Hence literally all voluntary exchange is mutually beneficial (so long as the parties are rational and well-informed). This does not mean that the situation voluntary exchange leads to is optimal, just that it is better than having no market at all.

---

Some further remarks on taxation:

Deadweight loss is indeed bad. (By the way what you are describing is comparative advantage, not deadweight gain, as you yourself noted correctly in the tags.) However taxation is not the only thing that can cause market failure, which is when the free market leads to a suboptimal outcome. For example market power (monopoly, oligopoly, monopsony, etc.) may also result in deadweight loss.

Unregulated externalities (e.g. pollution) may cause harm, and in this case taxation (or a proper market for the externalities) can actually improve everyone's situation.

Underfinanced public goods (e.g. roads) may also mean market failure. Voluntary financing usually leads to underfinancing, hence taxes (or some revenue mechanism) are needed.

So taxation, while it does have downsides, is not the devil. It may do more harm than good and it may do more good than harm, it all boils down to the details.

> **Comments:**
> **username_0**: Thank you for your time to answer my question :)  

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