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Quotations about Liberty and Power

About this Quotation:

In “Property and Plunder” written in February 1848 Bastiat takes up the challenge to free market economics made by the socialists who became a powerful force in the early phase of the revolution of February 1848. They questioned the legitimacy of all exchanges because they thought that there was a component of profit which was “unearned” because it came from the bounty of the earth or the labor of the worker. Bastiat uses the thought experiment of the story of Robinson Crusoe and Friday on their desert island to illustrate the logic of exchange in a more abstract and simplified form. In this, Bastiat was an innovator in using such stories to elucidate economic principles. There are three other points which should be emphasised here: the first is that in a free market both parties to an exchange have the freedom to participate in making the exchange or in refusing to do so. Any compulsion to trade or not to trade is a violation of their liberty and their property rights. Secondly, how close Bastiat is to a fully fledged subjective theory of value with his notion that each party considers how valuable the service offered by the other party is to him and not some external and supposedly “objective” value or utility. And thirdly, they way in which Bastiat universalizes the thing being exchanged into a “service”. Thus, it no longer matters whether the thing being exchanged is a good or a commodity, an amount of money in the form of a loan, an amount of money in the form of a wage, or an “immaterial good” such as the health services of a doctor or the “entertainment services” of an opera singer or the “educational services” of a teacher.

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23 July, 2012

Bastiat-fromDEP300

Bastiat on trade as a the mutual exchange of “a service for another service” (1848)

Read the full quote in context here.

The French economist Frédéric Bastiat (1801-1850) believed that all exchanges in the free market could be seen as a trade of one “service” for another service of equivalent value:

What makes a man refuse an exchange? It is his knowledge that the item being offered to him would require less work from him than the item demanded from him. It is absurd to say to him, “I have worked less than you, but gravity helped me and I have included it in the calculation.” He will reply, “I can also use gravity with work that is equal to yours.”

When two men are isolated, if they work, it is to provide a service to themselves. Where an exchange is involved, each person is providing a service to the other and receives an equivalent service in return. If one of them is helped by some force of nature that is at the disposal of the other, this force will not be included in the bargain as the right to refuse will oppose this.

The full passage from which this quotation was taken can be be viewed below (front page quote in bold):

Property and Plunder. Second Letter

I understand utility to be what everyone understands by this word whose etymology shows its meaning exactly, namely, that everything that serves a purpose, whether by its nature, by work, or by both, being useful, constitutes utility.

I call value the only part of utility that is communicated or added by work, so that two things are of equal value when those who have worked on them exchange them freely with each other. The following are my reasons for this:

What makes a man refuse an exchange? It is his knowledge that the item being offered to him would require less work from him than the item demanded from him. It is absurd to say to him, “I have worked less than you, but gravity helped me and I have included it in the calculation.” He will reply, “I can also use gravity with work that is equal to yours.”

When two men are isolated, if they work, it is to provide a service to themselves. Where an exchange is involved, each person is providing a service to the other and receives an equivalent service in return. If one of them is helped by some force of nature that is at the disposal of the other, this force will not be included in the bargain as the right to refuse will oppose this.

Robinson hunts and Friday fishes. It is clear that the quantity of fish exchanged for game will be determined by the work involved. If Robinson said to Friday, “Nature goes to a lot more trouble in making a bird than a fish, so give me more of your work than I will give you of mine since I am trading you in return a greater effort by nature… .” Friday would not fail to reply, “It is no more up to you than me to judge the efforts of nature. What should be compared is your work to mine, and if you wish to establish our relationship on the footing that I will work more than you on a regular basis, I will start to hunt and you can fish if you want to.”

You can see that the generosity of nature in this hypothesis cannot become a monopoly unless violence is involved. You can also see that, while it is a significant factor in utility, it is not a factor in value.

[More works by Frédéric Bastiat (1801 – 1850) and on 19th Century French Liberalism]