On July 12th, 2005, Kyle MacDonald Posted a picture of a red paperclip on Craigslist, and asked if anyone was willing to trade something for it. He received a response from someone willing to trade a pen for his little red paperclip, which he gladly agreed to. MacDonald continued trading items, each time getting something more and more valuable, until he eventually traded a role in a movie for a house in Kipling, Saskatchewan within a year. For the full story of MacDonald's red paperclip project, please visit his blog at http://oneredpaperclip.blogspot.com/, or check out his Ted Talk video below:
The obvious takeaway from MacDonald's project is that he engaged in multiple trades, each time trading something he had for something of greater value. But what about the people he traded with? Did they all trade something they had for something of lesser value? Did MacDonald take advantage of them? Not at all. Every one of MacDonald's trading partners willingly traded what they had for what they wanted without compulsion or force. While we don't know the motivations of each of them, we know that in each case, they traded something they had in exchange for something they perceived to be something of greater value.
That is the real lesson here. In every exchange where two people trade something they have for something they want, both sides of the trade gain value. You may purchase something at a store for $10 because you value the item for sale more than you value the $10 in your pocket. The store owner willingly accepts your exchange because she values your $10 more than she values the item she is selling. Both of you gain value. You are willing to go to work every day because you value the salary you receive more than the hours you gave up for that salary. Your company is willing to pay you your salary because you provide more value to your company than they give you by paying your salary. Because both parties freely agreed to the exchange of goods or services, both parties benefit from the trade.
The opposite is also true: When one party uses force or compulsion to make someone else exchange something against their free will, then the exchange results in an overall loss in value. As examples: When a thief steals your car, clearly, you lost value in the exchange, but the car itself also loses value, as the thief won't appreciate the car as much as you did, and will likely sell it for a fraction of what it was worth. If your buddy Joe were to take your $10 and buy you something he thinks would be in your best interest, would it worth as much to you as if you had chosen what to buy? Most likely not. Chances are, whatever your buddy Joe would buy you would be worth less to you than the $10 he took from you. Likewise, if the government forces you to sell your house to them so they can build a highway, you lose value in the exchange. Even if the government pays you fair market value for your home, you lose, because if you valued the home at market value or less, you would have willingly sold it. Slavery, forced labor, and conscription are prime examples of compelling people to act against their free will. Beyond the moral wrongness of denying someone their freedom, forced labor slashes peoples' ability to create value. When people have free choice in their actions, they can choose to do what creates the most value to them, but any actions forced on them will by necessity be less valuable than what they would have chosen for themselves.
History is full of examples of how loss of freedom leads to poverty. Compare East Germany with West Germany, Haiti with the Dominican Republic, or Venezuela today with Venezuela of 20 years ago. Prior to the Korean war, people living in North Korea were essentially the same as those living in South Korea. Both countries share the same language, culture, geography, and even families. The only real difference between the two is that people in the South enjoy much more individual economic freedom, while those in the North suffer under a Statist Regime. The chart below shows how much of an impact that difference has had over time.
The differences are stark, and the effects can last for hundreds of years. Descendants of the once prosperous Incas still suffer from the consequences of Spanish extractive policies. Descendants of enslaved people in the United States still lag far behind descendants of free people. Former Soviet countries still struggle compared to Western Europe. The cure in all these cases is greater individual freedom.
As we see, the key to financial resilience in individuals and society as a whole is free trade between willing parties without force or coercion. This lesson is even more important in the age of COVID, as many in authority immediately jumped to restrictions of freedoms in response to the pandemic. This could have long term catastrophic effects on our economy, and our freedom. Beware of authorities who claim the power to determine businesses to be "essential" or "non-essential". Watch out for authorities who command you to to work - or not to work - against your will. Never trust an authority who wants you to become dependent on their "free stuff". While their motives and intentions may be benign, history has repeatedly shown that this path inevitably leads to poverty and oppression.
How can we become more financially resilient in the age of COVID? As with everything, the key is for individuals to become more resilient to create a resilient society. Look around you right now. Do you have a paperclip that you can trade for a house? What skills do you have that others may value? How can you trade your goods or services for something of greater value? It doesn't have to be much, but even a little value can grow exponentially. Every day you encounter countless unmet needs, and challenges that need to be resolved. Each of those present an opportunity to create value. Address those little needs, and you will personally be helping to create a better, more resilient world.