Sunday, August 25, 2013

Voluntary Exchange Is Mutually Beneficial Redux

Michel de Montaigne
Or when is a renaissance not a renaissance? If you are not already aware, Jason Jewell, Associate Professor at Faulkner University in Montgomery, Alabama, where he chairs the Department of Humanities, assigned a very brief essay by Montaigne for part of the weekly reading in his Great Books Project. Let us just say that it is a pity that Montaigne was such an influential writer in Renaissance France. The essay, "One Man's Profit Is Another Man's Harm" is reproduced in its entirety below:

DEMADES the Athenian condemned one of his city, whose trade it was to sell the necessaries for funeral ceremonies, upon pretence that he demanded unreasonable profit, and that that profit could not accrue to him, but by the death of a great number of people. A judgment that appears to be ill grounded, forasmuch as no profit whatever can possibly be made but at the expense of another, and that by the same rule he should condemn all gain of what kind soever. The merchant only thrives by the debauchery of youth, the husbandman by the dearness of grain, the architect by the ruin of buildings, lawyers and officers of justice by the suits and contentions of men: nay, even the honor and office of divines are derived from our death and vices. A physician takes no pleasure in the health even of his friends, says the ancient Greek comic writer, nor a soldier in the peace of his country, and so of the rest. And, which is yet worse, let every one but dive into his own bosom, and he will find his private wishes spring and his secret hopes grow up at another's expense. Upon which consideration it comes into my head, that nature does not in this swerve from her general polity; for physicians hold, that the birth, nourishment and increase of every thing is the dissolution and corruption of another:-- "For, whatever from its own confines passes changed, this is at once the death of that which before it was."

Jewell had this to say about Montaigne's essay:

In a short three paragraphs, Montaigne completely misconstrues the nature of trade without going so far as to condemn it. Or maybe it’s just the title of the essay that is misleading. Montaigne writes that no one would have an opportunity for profit if no one else were dissatisfied with anything. Of course, that’s not the same thing as saying that one’s profit harms another. It would be more accurate to say, “One Man’s Profit Comes from the Relief of Another’ Man’s Harm.” It’s too bad they didn’t know about marginal utility in the 16th century.
I agree with Jewell, but would perhaps go farther. Montaigne's statement that everyone's "private wishes spring and his secret hopes grow yup at another's expense" shows, I think, that he was not misleading with the title.

Good economists know that every voluntary exchange is mutually beneficial, because each party receives something they value more highly that what they trade away. This is true even in the midst of trying circumstances. A physician who receives income from treating a sick person is not benefiting by harming his patient. He receives income as he treats his patient who needs his services because he is ill.

That trade is mutually beneficial was known at least as early as Aristotle. And in the Summa Theologica, Aquinas has this to say: "Buying and selling seem to be established for the common advantage of both parties, one of whom requires that which belongs to the other, and vice versa. . ." This understanding was embraced and developed by the British Scholastic also at the the Unversity of Paris, Richard of Middleton and by the Franciscan Pierre de Jean Olivi. In the 14th Century in his Quaestiones, a commentary on Aristotle's Ethics, the French philosopher Jean Buridan de Bethune further developed the principle of mutually beneficial exchange (On all of this see Murray Rothbard's Economic Thought Before Adam Smith, and Alejandro Chafuen's Faith and Liberty. Montaigne really should have known better.


  1. Mutualist anarchist here.

    I'm not so much interested in whether or not an exchange is "voluntary"; I'm interested in whether or not an exchange is equitable. Most of the exchange that happens under capitalism (where profit always turns into the bottom line) is not mutually beneficial in the least bit.

    Austrian economics tends to go on this warped line where exchange becomes ethical so long as the government doesn't get involved. They completely ignore factors like superstructure, culture/social norms, and so on. If I were starving, and someone offered me food in exchange for me becoming his temporary slave for 30 days, that would not be equitable by a mutualist's standards, yet it would be perfectly fine by the standards of most Austrian Schoolers. Take this into consideration.

    1. Ms. Pitt,

      I would say that whether exchange is equitable and whether it is ethical are two different questions. Exchange is never equitable in the sense that both parties value the goods equally or that both parties trade from equal circumstances. If that is one's standard for exchange to be ethical and mutually beneficial, then it never is.

      Thankfully, exchange is mutually beneficial in the sense that, if both parties are freely engaging in exchange, they both receive something that they value more highly than what they give up. This does indeed happen all the time under capitalism. In fact serving others better than anyone else is the only way firms can reap a profit in a free society. It is hard to see how exchange is not mutually beneficial merely because people profit from it.

      Now it is important to know that when economists, Austrian or otherwise, state that exchange is mutually beneficial, they mean that only from the perspective of the participant's preferences at the time of action--not from any ethical standard or even from what one of the participant's preferences may happen to be immediately after the exchange.

      So I would not say that any voluntary exchange is "perfectly fine" in an ethical sense. There are a variety of voluntary exchanges people can make that I would not consider ethical. Prostitution would be one example. Another would be the example of slavery that you mention. Interestingly, Murray Rothbard, one of the greatest Austrian economists, has quite a bit to say about why slavery can never be part of the free society, and therefore never the result of voluntary exchange in his MAN, ECONOMY, AND STATE. In any event, you should know that I do take ethics into account when discussing exchange in my book FOUNDATIONS OF ECONOMICS.

      Best wishes.