Consider three individuals who are living on an island. Imaginatively, let’s call them Gus, Carl, and Hillary.
Now, through a lot of risky hard work climbing trees and picking fruit, Gus has accumulated quite a stash of coconuts. However, since Gus has been busy climbing trees, he has had no time to construct a hut in which to live. In contrast, Carl has no coconuts but is known throughout the island to be a wizard at hut construction.
Gus and Carl realize gains from exchange are there for the taking, and they meet to negotiate a mutually agreeable contract. Behaving as if they were free individuals, after some negotiation Carl agrees to build a hut for Gus in exchange for 7 coconuts per hour. Of course, Gus and Carl are happy with their deal or they wouldn’t have agreed to it in the first place.
Enter into the picture, Hillary. Hillary is not a party to the trade and is personally unaffected by Gus and Carl’s exchange. However, Hillary is at heart a frustrated bureaucrat and loves things like meetings, extensive discussions, “Robert’s Rules of Order,” and other such nonsense. Hillary is one of those weird birds who derives personal satisfaction from making and imposing rules upon others. She greatly enjoys ensuring that Gus and Carl adhere to her set of laws. It is Gus and Carl’s unending misfortune that they are fated to share the island with Hillary. (Hillary has a prison and also monopolizes the island’s most sophisticated weaponry, which means Gus and Carl take Hillary’s mandates quite seriously).
After overhearing the negotiations between Gus and Carl, Hillary decides that 7 coconuts per hour is not a “fair” wage, and that the compensation paid by Gus must be at least 12 coconuts per hour. Also, glancing markedly at her weapons, Hillary reminds Gus and Carl that she is the law on the island. She even goes so far as to suggest that the higher wage will stimulate the island’s economy, since Carl will be wealthier if he gets paid more coconuts.
Evaluating his pile of fruit, Gus decides it just isn’t worth it. He doesn’t want to pay 12 coconuts per hour, and calls off the transaction. Hillary has no problem with thwarting the exchange, her only concern was that no work gets performed at a wage she determined to be “unfair.” Carl is apparently hardest hit—he really wanted to eat. After the deal is nixed, Carl is sometimes overheard grumbling that he wishes Hillary would keep her nose out of his business. Gus contents himself with quietly thumbing through weapons catalogs.