The Free Market Center
It seems that many people are concerned about promoting either equality or equity. If you believe in either equality or equity, you’re living in a fantasy land — a land that only exists in your imagination. A perfect circle, for example, can only exist in the mind of a human. The same holds true of equity and equality.
Equality is the state of being equal in status, rights, and opportunities.
Equity consists of achieving the same outcomes.
No two people will have equal status, rights, and opportunities. If you think about it for two seconds, you will realize why. All people are not the same height. All people are not the same strength. All people don’t have access to the same resources. Nothing we do can make up for these differences.
Because we live in a dynamic and ever-changing world, the idea of achieving equity becomes downright silly. No matter what the intervening force, whether government or other, society cannot achieve equity in outcomes. Government intervention cannot change this fact.
Instead of wasting resources attempting to achieve the impossible, we should embrace our differences and use them to make life better for all of us. Two concepts in economic literature provide insight into how to take advantage of our differences: division of labor and comparative advantage.
If an organization has a large project to do, it becomes almost natural to divide it into parts and allow different people to work on those parts.
Although most people would not use the term “division of labor,” they naturally tend to divide projects into different parts.
Division of labor allows for production processes to be distributed most effectively.
Comparative advantage creates employment opportunities for all people wanting to work. Simply dividing a project into different parts does not resolve the problem of deciding who does what.
Because equality does not exist in the real world, we find that some individuals can perform different jobs better than several other individuals. How, then, do you decide which job these highly qualified people should perform? The answer comes from what we refer to as comparative advantage.
The multi-talented individuals should perform the tasks for which they are best qualified — for which they have a comparative advantage. Succeeding tasks should be distributed to those who are best qualified in each of those individual tasks. When that distribution of work has been accomplished, even the least qualified will have tasks to perform.
The principle of exchange distributes the productive benefits of the division of labor and comparative advantage throughout a free market. When people produce more of a product than they can consume, they can exchange quantities of goods they value less for quantities of goods that they value more.
Adam Smith spoke of the invisible hand of the market distributing goods efficiently. The market has no invisible hand. It has the exchanges of buyers and sellers based on their individual values.
When we combine the division of labor and comparative advantage with the ability to exchange in a free market, the system provides the most effective and efficient allocation of resources, and it creates employment for people of all abilities.
It turns natural inequalities into benefits for an entire market.
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