Free market capitalism doesn't really exist. The baker is the only baker in town, and could choose to increase prices and become filthy-rich (but doesn't, because he's a nice person). There are government regulations preventing me from setting up my own bakery without jumping through hoops – which is just as well, because if I could set up a bakery, I'd be selling people flavoured mud, sawdust, and plaster dust (zero-calorie bread: tastes just like the real thing!).
Mutually-beneficial transactions are a good description of what's happening, but that's not a description we can use to do systems-level thinking, because it's not what's "really" going on.
He doesn't, because he would quickly loose all his business to the competition, and if there was none, there quickly would be - unless government force provides him with an artificial monopoly.
"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."
- Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations
Mutually-beneficial transactions are a good description of what's happening, but that's not a description we can use to do systems-level thinking, because it's not what's "really" going on.