> ## Content Index
> Fetch the complete content index at: https://www.schweizermonat.ch/llms.txt
> Use this file to discover other available public pages before exploring further.

# From Trade to the State and Back
- URL: https://www.schweizermonat.ch/from-trade-to-the-state-and-back/
- Published: 2026-09-16T09:38:34.000Z
- Updated: 2026-09-16T09:44:04.000Z
- Description: The state emerged to fix market failure, it turns out that too much antidote is a poison in its own right. The state behaves very differently, it taxes others, doesn’t pay net taxes and state-owned businesses run on a deficit if costs are properly measured.
- Author: Alex Buxeda
- Tags: In Originalsprache

*Die Deutsche Version finden Sie* [*hier*](https://www.schweizermonat.ch/der-staat-subventioniert-sich-selbst/)*.*

I worked as a lifeguard both for a private company and for the state, I noticed a salary gap of around 20%. This is broadly in line with what[IWP found in its 2023 research](https://www.iwp.swiss/publikationen/eine-praemie-fuer-staatsangestellte-verwaltungsloehne-unter-der-lupe?ref=schweizermonat.ch): the state pays more for the same positions. The difference is particularly big at the lower end of the hierarchy. For middle-level positions, the gap is around 11%, while higher up in the hierarchy it gradually disappears and even reverses.

I wondered why. It turns out that the state is not another market participant. To understand why that is, and how it came to be, we will have to go from trade, to the state, and back again, starting at the base of human action.

Anything you want to do requires resources.Want to wash your hair? You will need water, shampoo and time. Repair your bike? You will need the tools, an adequate place to do it on and time.Why would anyone want to do something? Because one thinks that things could be better. The expected benefit is bigger than the expected cost, that the water and shampoo are less valuable than having clean hair at that moment.

Profit is having more or better than before.It is needed to survive, as fighting pathogens, growing, and gestating the next generation all require resources, if you calorically live from paycheck to paycheck you won’t grow, expand,or survive an unexpected bad harvest. Profit has meant robustness, health and expansion for 3 billion years, since life exists. This is the pursuit of profit at the most basic level.

**Trade**

What happens if you want a toaster, but you only know how to wash hair? You could offer your services – your time, water, and shampoo – in exchange of clean hair to others, hoping they will value it more than the alternative. Becausethe hair doesn’t get washed alone, there would be a reason to value the service more than just the shampoo and the water alone. This is labor.

**Prices**

How do we determine what is more valuable? How many hair washes are worth a toaster? It depends entirely on how much others value them. Suppose some value the toaster at two hair washes, and others at four hair washes. When both groups trade, those who previously got a toaster for two will start accepting them for the worse price of three. Over time, the market settles somewhere in between – let’s say three. This is a price, determined by the supply and demand of both goods.

In our market, a toaster is now worth three hair washes. Consensus is reached because no one has to accept a worse deal or can easily find a better one.

**Money**

What if you need a toaster,but the person who has one doesn’t need a hair wash? To trade, we need something that represents value – something the largest number of people agree is valuable over long periods of time. This is called liquidity. Ideally, there would be a lot of this in the market already, so the price won’t change by a new seller/buyer. How about a gram of gold? Let’s say that a hair wash is worth one gram of gold, and a toaster – as previously established – is worth three times that, three grams. Now you can focus on finding people who need their hair washed, even if they don’t own toasters. You collect a gram of gold for each hair wash. When you find someone selling a toaster, you pay them three grams in exchange.

Learning both how to make toasters and how to wash hair requires far more time than mastering just one. By specializing, you can spend all your time becoming a much better hair washer than a toaster maker would become if he spent part of his time learning how to wash hair. This is division of labor, allowed by the existence of money: a good that is valuable across the most time and space that can be exchanged for whatever happens to be more valuable here and now.

**Competition**

Why would anyone want having their hair washedby you?Alternatives don’t end with ‘dirtyhair’–someone else could do the washing, too. One has to offer a service that is better than both doing nothing and getting it washed by another person. How do customers know you are better than the alternative?

One can be better in many ways, but they all boil down to costing less – whether you are faster (lower time cost), safer (lower uncertainty cost), easier to find (lower search cost) or simply cheaper.

**Profit**

What happens when it costs you less to run your business? You can offer your service for a lower price while still covering your costs, making your service more attractive. More clients mean more business and more profit. That profit can then be reinvested into doing more of what generated it in the first place.

Just as the customer is better off because they judge their current state as preferable, when you have more capital than you started with, when you have a profit, you are also at a preferable state. The profit you get in a business is a signal that others send you when you are doing the right thing, the market tells you that there is too little of what you are offering, so you should expand, you should do more of that.

**Division of Labor**

Fast forward a bit:now we have many people offering specialized services, searching for their competitive advantage – the most valuable service they can produce at the lowest cost. As those advantages are found, profits accumulate as capital.

In the case of the hair washer, capital goes towardbetter shampoo, warm water, and hiring employees. Through this accumulation of capital, everyone becomes richer. With capital, services become better and cheaper per unit produced, having many people specialized is an economy of scale.

However, to trade efficiently, to have a high living standard, people must live close together,trade requires communication, and communication is inefficient in low population densities.

**Security**

Many people living closely together creates a strong incentive for crime, because it is a very different environment from the small group of people we saw daily and could keep track of in our evolutionary environment. This leads to the emergence of specialists dedicated to protecting property.

Unfortunately, some people refuse to pay for security, as it is difficult to contain, it naturally spills over to your neighbor, non-payers benefit from safer streets for free.This is known as free riding. Naturally, paying customers wonder if they can also get away without paying for security.

**Market failures**

This is a market failure; if enough people coordinated, everyone would be better off. But because individuals can cheat by not contributing, not enough resources are invested in defense, resulting in unsafe streets. Seeing how some are getting away with a free ride and streetsremainunsafe, contributors seeking security find a coercive solution;everyone has to pay, or face expulsion of the protected area orhavetheir resources taken fromthemby force.

The state emerges as the solution to externalities that are created, but not internalized by the market. To the anarchists, it emerges as a better coordinated group of people to prey upon the trader. Either way, it is a fitter organization than the market, as it emerged from the market but wasn’t rendered superfluous by it.

**The State**

Market failures justify the state, either philosophically or practically.Because the market, it is presumed, would fail to provide bathing facilities, healthcare, schooling, housing for the poor, or proper urban design, the state must step in. If people acting freely leads to an undesirable outcome, forcing them to pay for something they otherwise wouldn’t becomesa lesser evil.

**State Failure**

Once established, the state starts providing services to the population. Unfortunately, the state is not just another market participant: by definition, only the state doesn’t pay taxes. By definition. From its perspective, everything it buys comes with a discount equal to the tax rate.

If the state offers a service that the market is also trying to provide, the competition will have a hard time. Imagine running a business where your taxes fund your direct competitor – who doesn’t pay taxes and can operate at a loss indefinitely.

This naturally reduces the number of market participants. In a market with fewer participants,there is less trial and error, preventing mistakes from being corrected as quickly, less science, less evolution, less discovery – this is what Ludwig von Mises addressed with the impossibility of socialism.

Had there been any chance of the market providing bathing services, once the state steps in, the market becomes unable to compete. So what came first: the inability of the market to provide bathing services or the intervention of the state? Some say the inability of the market; others claim that the intervention of the state caused it.

**Equity vs.Trade**

One of the main presumed market failures is inequality.The argument goes that the market is unfair because it creates inequality, and inequality is unfair. Those making a profit aren’t necessarily doing something right – they might have been lucky at best or parasitic at worst. Therefore, their money should go to the poor, who weren’t necessarily doing something wrong, but may simply be unlucky.

Many believe that profit is obtained by unfairly taking more than agreed upon.This is only true when there is no competition to keep producers in check.The state creates the need for itself.

Vice spreads when the vicious bear no cost – this is the main negative externality created by the state. By collectivizing costs, individuals no longer feel their impact directly. It is like splitting the bill at a group dinner: when everyone pays an equal share regardless of what they order, people tend to eat more.

The state, as every organism, is subject to expanding if it plays its cards well and shrinking if it doesn’t. The state in rich countries went from \~10% of GDP in 1910¹,–when 20-40% of people lived near subsistence²–, to 40-55% by 2020 (\~38% in the US),³ –when there is 0% extreme poverty⁴–. Some believe the state caused the reduction in poverty, others that the wealth created by the market allowed us having a big, inefficient entity that doesn’t compete.

A way to settle this debate would be to see whether the low level of poverty in our countries is caused by state help. Only 3% of the GDP is spent in help to the poor, the remaining 38% is a race to the bottom of interest groups trying to get more from the neighbor than they pay him in taxes. 80% of the tax is money that goes from the middle class to the middle class, this is called fiscal churn.

The welfare state is the welfare of the state.

**Realigning Incentives**

Market failures are one side of the anti-civilisational coin, on the other side we have the state, alsofailing andcreating negative externalities. Civilization, turns out, is the perpetual alignment of incentives by reducing negative externalities, either from the state or the market.

Just likebiologicalgrowth can lead to cancer, and market profit to enshittification, state expansion leads to wasting resources. The universal solution to all three is competition; antibodies in biology, competing companies in the market, and the ideas of liberalism in governance.

With competition, incentives are aligned, everyone is interested in doingthe right thing, as doing the wrong things enough times means that you– and not someone else – will perish. Only through competition across all three levels can positive sum games flourish. Lets stop playing zero-sum ones.