Exchange produces two phenomena: the joining of men’s forces and the diversification of their occupations, or the division of labor.
In this first part of the chapter, Frédéric Bastiat focuses on what is exchange and why it is the engine of the economy and society.
Today’s quote aims at showing that exchange is even more important and virtuous than first thought. Indeed, the first economists quickly realised it was something major but a lot of them satisfied themselves with incomplete explanations before moving on to study other aspects of the economy. Thus, we are reminded that Condillac had concluded that an exchange that is freely made necessarily created two gains, one for the seller who is valuing the received amount above the value of the product and one for the buyer who is valuing the product above the amount paid. This point is well agreed by Bastiat but he considers that it does not explain why the exchange takes place and that it is simply an assessment.
What the author is trying to understand are the reasons at the source of the exchange that allow it to create value. Today’s quote identifies two of them that explain why exchange allows to optimise value. Both are linked to the comparative advantages that had been explained by David Ricardo. Joining forces reflects the fact that exchange allows several individuals to cooperate while taking account their own qualities in order to produce something that will benefit from the best of each of them. Division of labour allows not only that each of them produces that for which he has a competitive advantage but also to improve the production methods and benefit from economies of scale.
Other quotes from Exchange:
Introduction – Part 1 – Part 2 – Part 3 – Part 4 – Conclusion – Epilogue