Life is full of uncertainty. A plane might fall on your house. You may total your car. The value of your investments may crash. But, then again, you may find valuable mineral deposits on your land. You may inherit lots of money. You may find that the old trinket you bought at a flea market is worth thousands of dollars.

People make decisions based on their assumptions about the present circumstances and expectations for the future, whether that future is the next second or decades away. People act only because they expect to be better off, in some way, emotionally or physically, by acting. Those expectations may not hold up to reality, however, because, as we have seen, life is not a sure thing. Some people win and some lose.

There seems to have been a lot of losers these days. Investors, business owners, home owners and mortgage holders are taking a collective hit in the pocketbook. It is difficult in times like this to step back and see the overall picture, which is actually a quite wonderful thing, in spite of the mess created by monetary authorities. In societies where property rights are secure and people are protected from fraud, coercion and violence, including that by politicians, free trade leads to an amazing phenomenon. Whenever two people enter into voluntary trade, both sides win. Both sides to the transaction expect to be better off. If that were not the case, the transaction would not have taken place.

At the store, the customer values the shirt more than the money used to buy it. Conversely, the seller values the money more than the shirt. At work, the employer, the buyer of labor services, values the efforts of the employee more than the money he pays. The employee, the seller of labor services, values the money more than the time and effort given up to obtain it.

Because people create value by the things they do, they can give value for value received. That is the basis for the advancement of any society. Those societies that honor property rights and voluntary trade advance at a much quicker pace than those that don’t. The expectation of gain, and the ability to benefit from it, is a powerful incentive for people to create value. The expectation of ownership encourages people to invest in processes and equipment to create value more efficiently, thus benefiting everyone.

Some see the market process as systematic exploitation, a situation where every transaction has a winner and loser. They may point to the housing market or the stock market and explain that if someone buys at a high price and sells at a low price, that seller loses and the buyer wins. In this case it is important to identify what the loss arises from.

Using the stock market as an example, if someone bought at the peak of the bubble, they may indeed lose half of their investment if they sell today. The decision to sell is based on present circumstances of the seller and expectations for the future. There is a risk that the market can go lower. Neither seller nor buyer can predict the unknown future. If someone buys from the seller who’s stock lost value, the buyer assumes that the market will go up. He is willing to assume the risk of the unknown, which the seller is no longer willing to bear. The loss came only from the decline in the market prices, not from the selling. The decision to sell cannot affect what happened already. The seller benefits from being relieved of the risk of further decline. The buyer benefits from assuming the possibility of turnaround and future gains. In the transaction, both sides must necessarily feel they are better off by consummating the deal.

It is similar to totaling your car. The collision with the tree was the loss. If you make a deal with someone to buy your car, the person will pay the price of a wreck, not the price of a new car. The accident with the tree changed the present situation. Given the present reality, the decision can only be whether you are better off with the wreck than you would be with the money the buyer offers you.

As with every voluntary trade, if you decide to sell your car, you win. You are better off after the trade. If the buyer decides to buy, he is also better off. Both sides win with voluntary trade.

Dan McLaughlin is a former financial executive and is a columnist for The Post Journal. Visit the web site http://www.aboutfreedom.org. Contact him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .