Charity Needs Markets

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Jorg Guido Hulsmann’s post, Charity Needs Markets, investigates the practice of gift-giving in human society and its relevance to finance, if any. At that end, he makes the first observation that gift giving necessitates agreement between two people: the giver and the receiver. This is due to the fact that the process of gift giving entails the transfer of real property. Since the movement of any asset creates value, gift-giving is a valuable exchange among people in any society. Using this as a foundational principle, one can make the case that gift-giving ought to replace the monetary and pricing system in the exchange of goods and services as it will mean that everyone will have everything they need. As inviting as this concept sounds, analysis of Communism reveals it to be a worse alternative to markets and pricing.

In the article, Guido affirms the need for a pricing and ultimately economically based exchange system in contrast to the model of gift-giving. Pricing provides much-needed guidance on what is pertinent and what is not necessary. Commodities in high demand will have higher prices than those which do not. Furthermore, pricing allows one to distinguish between essential and unnecessary items, thereby eliminating luxury commodities in place of necessities. In a gift-giving framework, even the most reasonable decision making cannot adequately address the ever-changing and impossibly intricate human society, particularly regarding the needs and wants of a population. Guido’s article thereby concludes that the shortcomings of gift-giving presents the inevitability of markets as well as the reality that a vibrant exchange system in any region or state is one which promotes dynamic and competition-centric exchanges.

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