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Page 13
ordination is needed, to take full advantage of the opportunities offered by modern science and technology, is enormously greater. Literally millions of people are involved in providing one another with their daily bread, let alone with their yearly automobiles. The challenge to the believer in liberty is to reconcile this widespread interdependence with individual freedom.
Fundamentally, there are only two ways of co-ordinating the economic activities of millions. One is central direction involving the use of coercionthe technique of the army and of the modern totalitarian state. The other is voluntary co-operation of individualsthe technique of the market place.
The possibility of co-ordination through voluntary co-operation rests on the elementaryyet frequently deniedproposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed.
Exchange can therefore bring about co-ordination without coercion. A working model of a society organized through voluntary exchange is a free private enterprise exchange economywhat we have been calling competitive capitalism.
In its simplest form, such a society consists of a number of independent householdsa collection of Robinson Crusoes, as it were. Each household uses the resources it controls to produce goods and services that it exchanges for goods and services produced by other households, on terms mutually acceptable to the two parties to the bargain. It is thereby enabled to satisfy its wants indirectly by producing goods and services for others, rather than directly by producing goods for its own immediate use. The incentive for adopting this indirect route is, of course, the increased product made possible by division of labor and specialization of function. Since the household always has the alternative of producing directly for itself, it need not enter into any exchange unless it benefits from it. Hence, no exchange will take place unless both parties do benefit from it. Co-operation is thereby achieved without coercion.
Specialization of function and division of labor would not go far if the ultimate productive unit were the household. In a modern society, we have gone much farther. We have introduced enterprises which are intermediaries between individuals

 
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