Does the Mayweather vs. McGregor Fight Create or Destroy Wealth?

It’s the fight of the century but what are the economic implications? More than half a billion dollars is going to change hands. Pundits are screaming that this is nothing but a “money grab.”

This fight is not about money moving from here to there.People who can’t afford it, they say, are going to shell out $100 bucks to gawk at two dudes punching each other. And the organizers are going to make a killing.

Look at this from the point of view of an earnest central planner. It seems like an economic disaster. All this money is being transferred from people’s pockets to media moguls and boxers, when it could be used to feed, clothe, and house people. It could be invested to create real jobs and make real things that people need.

Such a central planner would never allow this to happen. Surely are better things to do with half a billion dollars than to blow it on a gladiator fight!

Actually…

This is completely wrong, but for counterintuitive reasons. This fight is not about money moving from here to there. Instead it is actually creating massive wealth.

To understand why, you have to leave aside the institution of money itself, which is nothing but a proxy for property that is easier to exchange. People are merely giving up some of what they own to consume a service they enjoy.

At some point, people realized: there are always gains from trade provided it is voluntary.The essence of all exchange is that both people benefit, each more than the other. The people who are giving up $100 to watch a fight value the viewing experience more than the $100. The people enabling the viewing experience value the $100 more than excluding people from watching it. Cooperating together, they exchange, and are both better off than they would otherwise be.

This alone creates wealth. Maybe that sounds obvious. It is not. In fact, this one point was missed on every single ancient philosopher. Even Aristotle believed that commerce was nothing more than moving things from here to there. He did not get subjective value. And therefore he couldn’t conceive of how wealth could be acquired apart from some act of conquest.

Incredibly, it wasn’t until the late Middle Ages when even the best thinkers realized this obvious point. At some point, people realized: there are always gains from trade provided it is voluntary.

Loss of Capital?

What about the loss of investment capital that could otherwise be building things for the future? Capital is not being lost at all. It is being risked by some in service of others. If the result is a profit, you have another source of rising wealth.

In fact, nothing is being lost at all. Property is being moved from less-valued uses to more high-valued uses. It is going from a place where is it less useful to a place where it is more useful. Whether and to what extent a particular amount of property is valued at its highest uses can only be determined when people are free to exchange.

Another source of wealth here is in the entrepreneurship it required to put this venue on in the first place. If the fight weren’t happening, people would not have the opportunity to consume a service that they apparently desperately want. But someone has to come forward and act: I will create this opportunity for you, in the hopes you will like it and spend money on it.

The best system is that which gives us freedom to act on what we value. The final source of wealth creation here is in the expansion of the division of labor, which means more and more talents are coming together in a cooperative relationship, enabling more specialization and choice. Think of the millions of people and talents that have to come together here: lights, promotion, venue owners, trainers, electronics, cameras, announcers, clothing makers, and so on.

Just as no one person can make a pencil, no one can put on this fight. It requires massive efforts across deep and wide structures of production to make this possible. 

If it all works, and a profit is the result, we are going to see more of this, and hence more opportunities for this wealth creation.

You Don’t Have To

And you know what’s interesting about this? I don’t even like these fights. I won’t watch because I don’t really care. But you know what? I still benefit from any wealth creation at any level of society. In a market society, the wealth created in one sector expands outwards to benefit everyone. It means more jobs, more investment, more trading, and generally more opportunity for all.

Wealth is what we value, period. The best system is that which gives us freedom to act on what we value. Seems like a great system to me, and much better than any central planner could ever cobble together based on some intuition about what we should and should not do.

It might look like punching but what’s actually happening is that we are all getting wealthier. For my part, I prefer the symphony but that’s just me. Freedom allows everyone to benefit from everyone else’s interests and desires.