Walter E. Williams

With all the recent hype and demagoguery about gasoline price-gouging, maybe it's time to talk about the basics of exchange. First, what is exchange? Exchange occurs when an owner transfers property rights or title to that which is his.

 Here's the essence of what transpires when I purchase a gallon of gasoline. In effect, I tell the retailer that I hold title to $3. He tells me that he holds title to a gallon of gas. I offer to transfer my title to $3 to him if he'll transfer his title to a gallon of gas to me. If this exchange occurs voluntarily, what can be said about the transaction?

 One thing we know for sure is that the retailer was free to retain his ownership of the gallon of gas and I my ownership of $3. That being the case, why would we exchange? The only answer is that I perceived myself as better off giving up my $3 for the gallon of gas and likewise the retailer perceived himself as better off giving up his gas for the $3. Otherwise, why would we have exchanged?

 Exchanges of this sort are called good-good exchanges, namely "I'll do something good for you if you do something good for me." Game theorists recognize this as a positive-sum game -- a transaction where both parties are better off as a result. Of course there's another type of exchange not typically sought, namely good-bad exchange. An example of that kind of exchange would be where I approached the retailer with a pistol telling him that if he didn't do something good for me, give me that gallon of gas, I'd do something bad to him, blow his brains out. Clearly, I'd be better off, but he would be worse off. Game theorists call that a zero-sum game -- a transaction where in order for one person to be better off, the other must be worse off. Zero-sum games are transactions mostly initiated by thieves and governments.

 Some might argue that there's unequal bargaining power between me and the gas retailer. That's nonsense! The retailer has the power to charge any price he wishes, but I have the power to decide how much I'll buy, including none, at that price. You say, "Gas is a necessity, and we're forced to buy it." That too is nonsense. If I voluntarily purchase the gas, I do so because I deem it better than my next best alternative. Of course, at a high enough price, I wouldn't deem it as such.

Walter E. Williams

Dr. Williams serves on the faculty of George Mason University as John M. Olin Distinguished Professor of Economics and is the author of 'Race and Economics: How Much Can Be Blamed on Discrimination?' and 'Up from the Projects: An Autobiography.'
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