**Money, Trade and the Laws of Supply & Demand** Fundamentally, Azadism is based on the free interactions between people, who are constantly exchanging with one another to satisfy needs and wants in a society. Azadism promotes a system in which individuals, acting out of their own self-interest (within certain limits), can freely exchange goods and services to meet the societal requirements of production, consumption, and the distribution of wealth. Human beings are in a unique position in a variety of ways, and one of the early developments crucial to our success as a species has been the ability to cooperate, compete, and communicate. These traits culminated in a system where we could trade and barter for resources, rather than rely solely on killing and stealing in a constant struggle for survival. Consider the example of early human tribes, whereby one tribesman becomes an expert in hunting and can acquire more meat than he is able to consume by himself. However, due to his success, his weapons constantly need repair or replacement. Another tribesman finds that he is better suited to repairing or making higher-quality weapons rather than hunting himself. The hunter recognises the potential in this and decides that, in exchange for those weapons, he will give the other tribesman some of his surplus food. The weapon-maker needs the food, and the hunter needs the weapons. In other words, the hunter values the weapons more than he values the extra food he cannot consume, while the weapon-maker values the food more than the weapons he cannot use as effectively as the hunter. By having a system of exchange, the hunter now has another option instead of simply fighting with others and taking what they have. There is now an opportunity to cooperate. The hunter recognises a greater benefit in cooperation, as the superior weapons make his hunting easier and more fruitful. The weapon-maker, rather than having to go out and hunt, can devote his time to honing his craft and perhaps innovating further. This example forms the basis of what is known as the _market_, which is run upon the subjective value each participant places on different goods and services. In time, this symbiotic relationship would develop as more people enter the market to exchange what they value less for something they value more. As this occurs different areas of specialisation develops, since more time is devoted in other areas of the survival process. This example forms the basis of what is known as the _market_, which operates on the subjective value each participant places on different goods and services. Over time, this symbiotic relationship would evolve as more people entered the market to exchange what they valued less for something they valued more. As this occurred, different areas of specialisation developed, since more time was devoted to other aspects of the survival process[^1]. Now, not everyone had to be a hunter; instead, individuals could provide other goods or services to trade with the hunter for food. From this, even secondary markets emerged, allowing the exchange of more than just food. It became unnecessary for everyone to revolve their lives around finding their next meals like animals. People were now able to devote time to new ways of producing things that others valued and were willing to trade for. It was from this kind of cooperation within society that tasks could be broken up into parts, allowing individuals to focus on delivering one part of a process rather than the whole. The hunter no longer needed to divide his time between making weapons, hunting, and cooking. Through trade, these tasks could be handed over to others, freeing up time to specialise and gradually build valuable experience and efficiency. With trade and markets, people became free to pursue and develop many other essential crafts, which have led to the innumerable innovations of the human race. The opportunity for people to move beyond merely meeting their base requirements and surviving gave way to the formation of key institutions in our evolution as a species — including agriculture, the arts, religion, and more. Eventually, a common medium of exchange had to develop due to the following issues. Imagine a farmer who owns a large herd of cows but no horses. From his point of view, he may value a horse as being worth three of his cows and so looks for a seller willing to trade with him. When he enters a marketplace, he may realise that horse sellers generally exchange for a different number of cows. The farmer will weigh up his options. If he finds a seller who is only asking for three or fewer cows, he is likely to trade; otherwise, if the price of a horse in terms of cows is higher than this, he may not. However, what happens if horse sellers do not want cows but instead need bread? They could possibly sell the cows in the hope that a baker wants them, but this poses another problem. A single cow may be worth 100 loaves of bread, but how many cows would exchange for a single loaf? Unless you cut the cow into parts and hope the baker wants that (and is also not a vegetarian), the transaction would be unlikely to occur. Therefore, over time, money was introduced as a common object that everything in a market could be exchanged for. This has taken many forms throughout history, but most popularly it has been in the form of precious metals such as gold and silver. These could be subdivided or melted together easily into different weights, representing different values. They could be carried around conveniently and also act as a store of wealth. A few ounces of gold could represent many cows, without having to take the entire herd to the marketplace. Instead of butchering the cow to buy bread, the farmer could sell it for some silver, and maybe use a tenth of an ounce to get his loaf, knowing it would be accepted. This is a key advantage of giving money the ability to determine prices more accurately. Through different weights of gold, you could calculate, in terms of that gold, how many cows are worth one loaf of bread. Suppose one cow was worth a hundred ounces of silver and a loaf of bread was worth one ounce of silver. In effect, you would now be able to sell a hundredth of a cow for a loaf without having to cut off parts of the cow. Over time, civilisations were able to standardise these weights to make exchange more accurate and trade easier. Later on, this was made even easier by banks, who could hold your physical gold in their secure vaults and issue you a paper note. This would represent a “promise” from the bank that you could redeem your gold at any time. This paper currency would then be used to transfer ownership of that gold during market interactions[^2]. But what determines how much money can be traded for a given amount of goods or services? How is the price of something calculated? In a market, there are many buyers and sellers with a variety of wants and needs to be met. Due to the self-interest motive, buyers aim to purchase at low prices, and sellers aim to get the highest price. However, in a competitive market there are many options, and so a seller cannot simply raise their prices excessively, since buyers would just go to another seller. Similarly, a buyer cannot offer to pay a price too far below what other buyers are willing to pay, since no one would sell to them when they know they can get a better deal elsewhere. This conflict of interest between buyers and sellers allows for a natural market price to be determined for goods and services. This is known as the *supply and demand* of goods and services. Where the supplier produces a quantity of goods at a price meeting the amount demanded at that same level, this is known as the *equilibrium* price — the natural market price. It is important to recognise what price is composed of and, perhaps more fundamentally, value itself. Traditionally, this was usually thought of in terms of the costs incurred by the supplier of a good or service in its production. Adam Smith, in his ‘Wealth of Nations’, identified several primary factors in determining prices: the time and effort (labour) that went into it, the costs of purchasing or using materials, and the land required in the process. It also includes *profit* — the extra amount of money obtained in a sale beyond the costs of production[^3]. This profit incentive is what tends to drive suppliers most, since it is through this profit that they can go on to purchase other items in the market they need. Why would anyone go through all that effort and take on the risk involved, if they only break even or make a loss? There is room for this in charitable settings, but for the most part, people create something of value to society so that, in return, they can receive something they themselves value[^4]. Although the *labour theory of value* historically shaped economic thought and provides useful insights into production costs, it does not reliably explain how market prices are determined [^5]. While it is true that rising costs of production inputs — such as laboor, materials, or land — often lead to higher prices (for example, a rise in the price of metal would typically increase the cost of producing a sword), this alone does not capture the full story of price formation. Economists like Carl Menger, founder of the Austrian School of Economics, exposed the limitations of the labour theory by emphasizing that the value of a good is ultimately determined by the subjective preferences of buyers, not by the amount of work invested in its creation. In most cases, buyers neither know nor particularly care how much effort went into production. A diamond found in the dirt would sell for the same price as one dug out after a thousand days of labour in a mine (given the same size and shape)[^6]. As was touched upon in the previous section, even this perceived value on the buyer's side is not fixed. Someone stuck in a desert would value water far greater than someone living next to a river, and would therefore be willing to exchange far more in a trade for it than the latter person[^7]. Another example would be umbrellas. An umbrella when it’s raining is worth more than when it is not, despite the fact that the exact same labour went into producing it. Further to this, it is unlikely that an extra umbrella would be valued the same to you after the first one. The same way, gradually if you keep selling water to someone in a desert, after a certain point, each extra bottle would be worth less and less to them[^8]. The same product is valued differently based on the subjective beliefs of the one purchasing it, which is affected by all sorts of circumstances. Some people are willing to pay more, and some less. The average price we tend to find on things is therefore the combined subjective values of everyone participating in the market. It also worth noting that information and expectations also shape how subjective value is formed. Buyers and sellers rarely have perfect knowledge, and their decisions depend on what they know, or _believe_, about alternatives, costs, and future conditions. A buyer may be willing to pay more today if they expect a shortage tomorrow, even if production costs remain unchanged. In this way, prices emerge from a mix of personal preferences, available information, and expectations about the future. Combining these ideas gave rise to a suitable answer to the infamous “diamond–water” paradox that had perplexed Adam Smith. This was the puzzle of why diamonds are worth more than water, even though water is far more essential to life. Diamonds, by comparison, have little use for survival. The answer lies in marginal utility: although water is more important overall, its value decreases as your access to it increases. Because water is not scarce like diamonds, it tends to be valued less since your need for it can easily be satisfied. In a trade, you have less to give up. Diamonds, on the other hand, are harder to come by, and so each additional unit holds greater value[^9]. In the study of economics, one of the first concepts introduced is _scarcity_ — the idea that resources are limited, while wants and needs are unlimited. When a certain quantity of a resource is used up, it prevents that resource being used elsewhere. Markets, therefore, offer a system for allocating resources according to where people themselves see value. If the demand for cars increases, then car suppliers produce more  because there's greater income available from selling that good. If the resources needed to produce cars begin to deplete or become harder to obtain, the supplier must raise prices. As prices rise, demand falls, since more people cannot afford the product. They now value their money more than the car they can buy with it, and so either hold on to it or spend it elsewhere. Those who are still able and willing to pay essentially signal that their subjective valuation still matches the supplier's price. This rebalances production, reducing the number of cars made to meet the new, reduced demand and helping conserve limited resources. The self organising qualities of a market requires no central authority to determine how much or how little something should be produced. It will adapt depending on the scarcity. There is also no need for a central planner to decide what should and should not be produced, since whatever there is a demand for will be made available by those seeking a profit, and what people don’t want or need won’t be supplied. This is known as “price signalling”, which is the market's own way of communicating where resources should be allocated. However, under Azadism there are some restrictions to this relating to the Non-Aggression Principle (NAP) in order to avoid some undesirable markets arising that destroy human freedom[^10].   As we can see, prices are the essence of the market, and any state manipulation through artificial price controls can lead to surpluses and shortages. A government-backed price control system contributes most to inefficiency in resource allocation, due to the principles of supply and demand being distorted. If the state sets a maximum price cap (below the natural, equilibrium price), shortages occur, since there is less incentive to produce the good. Conversely, if it mandates that no selling is allowed below a certain price (above the equilibrium), surpluses (and waste) arise, because there is a guaranteed payout above the natural price, encouraging overproduction[^11]. This is why Azadism rejects needless and ineffective government interference with natural market forces. Free and fair market interactions, absent state intervention, are a self-regulating system that does not require a central authority to determine resource allocation. It is the people themselves, through voluntary interactions, who decide where resources should go. When something becomes scarcer, it becomes more expensive, and because of this price signalling, people will demand it less. This remains the case until suppliers are able to produce more and bring prices back down through competition. Not only does this reduce the risk of bad economic policy, but it also creates a higher probability that resources will be used efficiently, according to what people in a society actually need or want, rather than according to what a central planning authority decides for you and I. Why should someone you have never met, who has not lived your experiences, decide what is best for you? Even if they claim to represent you and your community, it is unlikely they can represent everyone else, given the sheer diversity of thoughts, needs, and wants within society. This does not justify the so-called “representative” in taking from one group in order to meet the needs of another. In any other context, that so-called authority would be labelled a thief. Another way to combat scarcity is by reducing wants and needs of the people. However, achieving this is far harder than it may seem. Religions have been trying this for thousands of years. Even if the desire for unnecessary goods and services were eradicated, people still need food, water and shelter. As the population grows, so too does demand for these bare necessities. It is unreasonable to build a society on the assumption that, once established, everyone will become Mahapurakhs overnight and abstain from all worldly attachment, subsisting only on air. The reality is that the vast majority of the world lives in a state of Kalyug, and idealistic societies where everyone simply stops consuming may only exist in some ideal of Satyug. <br> > **ਕਲਿ ਕਾਤੀ ਰਾਜੇ ਕਾਸਾਈ ਧਰਮੁ ਪੰਖ ਕਰਿ ਉਡਰਿਆ ॥** > The Dark Age of Kali Yuga is the knife, and the kings are butchers; righteousness has sprouted wings and flown away. > > *― Sri Guru Granth Sahib, Ang 145* <br> This is not to say that these ideals should not be strived for; rather, it acknowledges that getting there requires spiritual _progress_, which must be undertaken independently of state coercion. You cannot force anyone to become spiritual, the same way how you can not force anyone to love — and these are not dissimilar in principle.  <br> > **ਸਾਚੁ ਕਹੋਂ ਸੁਨ ਲੇਹੁ ਸਭੈ ਜਿਨ ਪ੍ਰੇਮ ਕੀਓ ਤਿਨ ਹੀ ਪ੍ਰਭੁ ਪਾਇਓ ॥੯॥੨੯॥** > I speak Truth, all should turn their ears towards it: those who are absorbed in True Love, will find the Lord. > > *— Sri Dasam Bani, Tav Parsad Svaiye* <br> You can only cultivate the right environments for these things to arise organically, the same way a gardener nurtures his garden for roses to grow. Therefore, Azadism accounts for this by recognising society must be built upon the “lowest common denominator” of spiritual attainment. To conclude this section, a final example showcasing the breadth of markets is the concept of language. The revolutionary Austrian school economist and philosopher Friedrich Hayek explains that it is a mistake to believe language was invented by wise men of the past[^12]. Instead, language developed through millions of interactions between people, each adjusting and adopting vocabulary as needed. If enough people called something by the same name, it came to be known by that label and entered an unwritten societal lexicon shared by all. If certain mouth sounds were unpopular, they never became formal words. There was no central authority decreeing what constitutes as language or mere noises. Rather, it was the independent, voluntary market transactions between the people themselves, who traded words to reach a mutual understanding that gave rise to what we now call language. Only afterwards were dictionaries written, not to invent language or to set its boundaries, but to record what already existed. The history of the first Oxford English Dictionary was a monumental effort to scour every major document and piece of literature available at the time. Although the first editions were finalised in 1928, the fact that English is a “living” language means the dictionary will never truly be finished until the language itself falls out of use. This is why even today, new words continue to be added, as society carries on the ongoing trade of words and phrases[^13]. Azadism promotes individual responsibility among the people themselves, and in doing so removes the over-reliance on the state to manage their lives. People should be free to interact and cooperate to reach mutual consensus, without needing a central planner to dictate what is best for them. The only role of an Azadist government is to protect the freedom of those interactions and defend the market’s existence from any internal or external threat. Any interaction involving coercion would be considered a threat to the proper functioning of a free and independent market. In any market exchange where one party is dissatisfied, the other cannot force the transaction to proceed without violating the Non-Aggression Principle (NAP). This also applies to exchanges between two parties that affect a non-consenting third party. Wherever the NAP is breached, it becomes an Azadist government’s responsibility to defend those harmed and punish the aggressors. The primary function of government is therefore largely limited to the justice system, police, and military. This, in turn, means that an Azadist government is necessarily a small one, with most other services being provided by the market rather than the state. <br> --- # Other Useful Resources Please take some time to understand Supply and Demand, as it is a crucial element of economics. **Link: [Law of Supply and Demand Definition (investopedia.com)](https://www.investopedia.com/terms/l/law-of-supply-demand.asp)** **Link: [Explaining supply and demand - Economics Help](https://www.economicshelp.org/blog/160660/economics/explaining-supply-and-demand-2/)** **Link: [Simulating Supply and Demand - YouTube](https://www.youtube.com/watch?v=PNtKXWNKGN8&list=PLxUfDdw5RjEIB4aWVJWYvltl5uey7h-Ej&index=3)** Understanding of the pricing mechanism and markets forms the basis of economic thinking. This is only a brief summary of these concepts, and in order to avoid this paper becoming an economics textbook, it is recommended that the curious look into this further for a deeper understanding. I have included only as much as required for the purposes of this manifesto and as an introduction to arguably the most important concepts in economics and human behaviour as a whole. Some of the concepts mentioned in this section included: supply and demand, opportunity costs, subjective theory of value and marginal utility theory. The reader is encouraged to explore these further so that their understanding is solid. <br> --- # Footnotes [^1]: This concept became known as the “division of labour” of which Adam Smith detailed in his work. The following link is an interactive demonstration of one of the analogies given in Smith’s Wealth Of Nations about a pin factory: **Link: [Adam Smith's Enlightened World (adamsmithworks.org)](https://www.adamsmithworks.org/pin_factory.html)** [^2]: Unfortunately now, a gold standard is no longer used. President Nixon took the world off of this gold standard in 1971,  and onto a dollar-based one backed by nothing but trust in the US government. **Link: [A Brief History of the Gold Standard, with a Focus on the United States | Mises Wire](https://mises.org/wire/brief-history-gold-standard-focus-united-states)** **Link: [WTF Happened In 1971?](https://wtfhappenedin1971.com/)** **Link: [Mises on the gold standard as the symbol of international peace and prosperity (1949) | Online Library of Liberty (libertyfund.org)](https://oll.libertyfund.org/quote/mises-on-the-gold-standard-as-the-symbol-of-international-peace-and-prosperity-1949)** Whilst a gold standard was important to help prevent inflationary money printing by governments (and is perhaps much better than what we have now), it still was set by the State as legal tender. Azadism would do away with any State-backed or mandated currency (including gold) and let the people themselves establish their own money through market interactions. If people want to pay in gold that’s great, as well any other kind of money such as cryptocurrencies. By separating money and Government, the power of manipulating the money supply is removed. A future publication may expand in more detail the monetary environment of an Azadist state; for this manifesto, it will become too technical. However, it must be stated that alongside the removal of legal-tender laws, Azadism is strictly opposed to any form of central banking. No central bank should have power over the money supply, setting unified interest rates for society or acting as a State-backed lender of last resort in an Azadist system. Bail outs are perpetuating bad outcomes and preventing bad actors from learning their lesson. [^3]: **Link: [Chapter VI | Adam Smith Works](https://www.adamsmithworks.org/documents/chapter-vi-of-the-component-parts-of-the-price-of-commodities)** [^4]: Another example may be non-profits, however, even here, owners and workers are still usually paid a salary. Profit is still generated, but it is reinvested into the organisation or goes to the cause that they were set up for instead. [^5]: This was known as the "Labour Theory of Value” and was adopted by many classical economists, including David Ricardo and Karl Marx. This has now been largely debunked and replaced by the Subjective Theory of Value and the Marginal Utility Theory thanks to the Austrian School of Economics. **Link:  [Three Arguments Debunking Marx’s Labor Theory of Value | Mises Wire](https://mises.org/wire/three-arguments-debunking-marxs-labor-theory-value)** [^6]: Carl Menger was the founder of the Austrian School of Economics. After recognising discrepancies between the ideas of classical economists and his experience with the real world, it led him to critically re-evaluate the entire field of economics. In 1871 he released his work *Grundsätze der Volkswirtschaftslehre* — _Principles of Economics_. This diamond example was from the third chapter, accessed here: **Link: [Menger's Principles of Economics: Burying the Labor Theory of Value | Libertarianism.org](https://www.libertarianism.org/essays/mengers-principles-economics-burying-labor-theory-value)** [^7]: This is a common example used to explain the Subjective Theory of Value. Each person values goods differently depending on their own personal preferences. [^8]: This is covered by the Marginal Utility Theory, which states that after a point, each additional unit of a good that is consumed would provide gradually less satisfaction or utility than the previous unit. **Link: [Marginal utility | economics | Britannica](https://www.britannica.com/topic/marginal-utility)** [^9]: **Link: [The Value of Diamonds and Water Paradox (investopedia.com)](https://www.investopedia.com/ask/answers/032615/how-can-marginal-utility-explain-diamondwater-paradox.asp)** **Link: [Value and Prices - (Austrian Econ Basics #2) - YouTube](https://www.youtube.com/watch?v=4vmSBppSGzY)** [^10]: Examples of these are markets for _human beings,_ such as slavery and human trafficking. Since these both violate the NAP, they are not compatible with the idea of _Free_ Markets as interpreted by Azadism. The parties involved here have not all consented (by definition) and so transactions of this nature should be resisted to maintain freedom. Alternatively, markets for drugs do not break the NAP, since both buyer and seller have consented to this transaction. No freedom has been eroded in this case. This may seem immoral initially to allow drug trades to be legal, however, this may be expanded in a posts outside the manifesto to dispel some of the misunderstanding around the legalisation and decriminalisation of drugs. [^11]: **Link: [Price Controls - Econlib](https://www.econlib.org/library/Enc/PriceControls.html)** [^12]: **Link: [Friedrich Hayek (Stanford Encyclopedia of Philosophy)](https://plato.stanford.edu/entries/friedrich-hayek/)** Hayek was perhaps one of the greatest minds in the last century regarding economics. When he moved to London in 1931 he provided strong resistance against the ideas of John Meynard Keynes. However, unfortunately, Keynes succeeded in the public sphere, with many of the modern western so-called “capitalist” economies adopting varying degrees of Keynesian policies as a result. For more information about this debate, see here: **Link: [The clash between Keynes and Hayek defined modern economics | British Politics and Policy at LSE](https://blogs.lse.ac.uk/politicsandpolicy/keynes-hayek-nicholas-wapshott/)** **Link: [Keynes vs. Hayek: The Great Debate Continues – AIER](https://www.aier.org/article/keynes-vs-hayek-the-great-debate-continues/?gclid=CjwKCAjw5c6LBhBdEiwAP9ejG30M5zapbkrIvzRyfybDOezQ7doqWV8U6RX6txKLW1nDuTYieZaWehoCfL0QAvD_BwE)** [^13]: **Link: [History of the OED | Oxford English Dictionary](https://public.oed.com/history/)** **Link: [How the Oxford English Dictionary started out like Wikipedia | WIRED UK](https://www.wired.co.uk/article/the-oxford-english-wiktionary)**