I messed up the numbers in the chart, but you get the idea.
OK, I think I see where this is going. The laundry has two options, paying the soapmaker or paying the factory to “clean the clothes” correct? One is a traditioanl way, using soap, and the second is a bit abstract in that it cleans the clothes by not getting them as dirty (or however, it works). SO putting aside any kind of market power issues, the laundry will try to operate his business suh that he does it in a least cost way, some combinatioon, presumably of pollusion abatement and soap. This is optimal because by doing it in the least cost way, it is using the limited resources the economy has to offer in the most efficient way. The prices determined by the soap maker and the factory are determined as usual, price versus cost. This is basically Coase, by creating tradable pollution rights, the economy can properly choose between least cost alternatives. So, yes, the soapmaker loses business, but only because it is more costly and that is why society gains, the market chooses the least cost way to clean clothes.
I expected this, actually.
The problem is that economics has almot NOTHING to do with money. There’s branches with deal with how it works and how it can be used, but money itself is irrelevant except as a medium of exchange. SO, I think you’re looking at the money moving through the system. But the money is just a token of value. Look past it to see how value has shifted.
In this case, you’re parlty right but are missing the larger picture. (And believe me, I know the feeling. Economics is easy to get a feelfor but HARD to actually understand.)
The asnwer to your question has to do with where the value comes from. The Laundry probably doesn’t get a whole spare $10 on the transaction - society does. If that money goes to the detergent maker, society instead spends the cash on the detergent. The detergent maker spends it on detergent ingredients and labor.
Now this is the key step. Once you get to the absolute lowest level - materials and labor (and both are functionally equal in that we get materials through the investment of labor and capital), you find that society as a whole is spending less in capital and labor on detergent than on other things. And this is what’s very, very good about it.
Do you know Maslowe’s Heirarchy of Needs? Think of it in the similar (not the same!) way. As individuals and therefore more or less as a society, we try to take care of basic physical needs before we spend on things to make us safe. We spend on those before we spend on fun things. Everyone needs something of each, so we don’t entirely cut out higher-level spoending before low levels are taken care of*.
But, let’s say that we can get things at one level - any level, but especially the more basic ones - more cheaply. We can then spend our labor (hence money) buying or obtaining things we like more. This is most clear in the case of, say, getting cheap, wholesome foods and spending the difference on movies. BUT, it can happen on the same level or downward. If movie ticket prices go down (say the theaters become more efficient and can handle more people), then we can spend the difference buying nicer foods, or on rock concerts, etc.
*As C. S. Lewis once wrote, the “insects went in for efficiency and presumably have their reward.” But humans wanted things like truth and beauty NOW, not in the hopeful future where all lesser needs are taken care of - and which never comes.