Liberty Matters

The Metaphor of Market Exchange


My dictionary defines interpersonal exchange as "the act of giving one thing and receiving another in return." Insert "freely" before "giving" and you get the kind of exchange found in markets. Don't —and in addition you get the kind of "exchange" found in carjackings.[15] Use the metaphor of market exchange to describe law or politics and you risk conflating these kinds of "exchange"; also, you find yourself in the company of libertarian giant Bruno Leoni.[16]
Carlo Lottieri puts it more delicately, but that's the point to which his essay directs our attention: Leoni well knew and in fact eloquently exposited the differences between market exchange and interactions in law and politics.[17] Yet he used the language of market exchange—as in "exchange of claims" and "exchange of powers"—to describe the origin of legal rules and political communities anyway.[18] Why would Leoni do that?
I see a few possibilities. But first a few words about market exchange.
Market exchange has two key features: 1. It's consensual. 2. In expectation it creates net benefits.[19] Because of these features market exchange finds libertarian friends with ease.[20] Perhaps you value liberty as an end in itself. Exchange has you covered: it's consensual, so it doesn't run afoul of any non aggression taboos. Or maybe you value liberty as a means to the end prosperity. Exchange has you covered in that case too: it creates net benefits, which is just another way of saying that exchange creates wealth.                
These attributes of market exchange are intimately related. The very reason that market exchange assuredly creates net benefits is that parties engage in it only when willing—when each sees the prospect for gain. This relation is responsible for the so-called "happy coincidence" hinted at above, the fact that marketplace interactions both respect rights and produce wealth. The coincidence, as it were, is not coincidental: consent implies the creation of net benefits.[21]
However, the creation of net benefits does not imply consent. Suppose that but for our ignorance of each other's existence, you and I could profitably exchange my Cuban cigars for your Dominicans—a property rearrangement that would generate $15 in benefits. Suppose further that at a cost of $3, a third party who's aware we exist, call him Arturo, takes your Dominicans without your permission and gives them to me and takes my Cubans without my permission and gives them to you. Arturo may have done so because he knew that if he'd asked, we would have consented.[22] Still, he didn't ask; we didn't consent; yet the rearrangement created $12 of net benefits.
Since net benefits can be created without consent, it's coherent to talk about arrangements that were not consented to but create net benefits.[23] And since metaphor communicates similarity to that which is otherwise dissimilar, there's nothing "incorrect" about using the metaphor of market exchange to talk about those arrangements. Indeed, it may offer advantages: faster, easier, more concise, concrete, or just euphonious explication or comprehension.
Metaphor is a useful tool. Consider how Leoni used his "exchange of powers" to talk about the origin of "political community": "If I grant you the power to prevent me from hurting you, provided that you grant me a similar power to prevent you from hurting me, we are both better off after this exchange."[24] Needless to say, you didn't actually exchange powers with Leoni; I doubt you even exchanged hellos. There was no consent. But there was the creation of net benefits (Leoni maintained ), and to convey or understand that idea, the metaphor of market exchange can be helpful.
Of course, it can also be misleading—especially if the metaphor's user doesn't mention the difference between market exchange and that which he likens to it: consent. Yet this ostensible disadvantage of the metaphor suggests another, quite different reason one might want to use it: sophistry.
Suppose you consider coercion immoral but are also aware that many rules that underpin observed civilization were not consented to by the people they govern. Suppose further that you're fond of observed civilization. You appreciate that people don't have to live in stick huts and suspect that the rules in question contributed to this circumstance. You therefore feel torn: your deontological principles tell you to condemn the rules, but your consequentialist inklings would rather you not.
One response to this dilemma is to try to square the circle, to find a way to construe the rules in question such that really, basically, pretty much when you think about it, they were consented to after all. And one way to do that is to construe the process by which the rules came about as "exchange."
"True, it wasn't exactly market exchange," you tell yourself—or perhaps a helpful expositor who has invoked the metaphor of market exchange suggests to you. "But it was pretty damn close. Net benefits were created, which means that people would've consented if they could've. So really, basically, pretty much when you think about it, people kind of did consent. After all, it was an exchange!"
And in so many fallacious steps encouraged by the metaphor of market exchange, you've fooled yourself or allowed yourself to be fooled into accepting as true what you want to be true but in fact is false: the rules underpinning observed civilization were consented to. It's easy to fall for this "trick" because consent implies the creation of net benefits, and that seems a lot like "the creation of net benefits implies consent." Except the creation of net benefits does not imply consent—the troublesome rules above (hypothetically) providing a case in point.
That, in my view, is the danger of the metaphor of market exchange. And as it turns out, Leoni may have worried about something similar: the abuse of "words originally having a technical use, but which were introduced into everyday language rather carelessly without paying heed to their technical sense."[25] As he explained:
Lacking their original connection with technical words, half-technical or nontechnical terms often go adrift in ordinary language. Their meaning can change according to the people using them, although their sound is always the same. To make matters worse, several meanings of the same word may prove mutually incompatible in some respects, and this is a continual source not only of misunderstandings, but also of verbal disputes or worse.[26]
One manifestation of "worse": "Shrewd people have tried to exploit the favorable connotations of" such terms "in order to persuade others to change their corresponding ways of behaving."[27]
Leoni wasn't talking about the term exchange ; he was talking about the term freedom. But exchange, too, has technical uses (in economics), is part of everyday language, and at least among libertarians has favorable connotations. Thus the metaphor of market exchange may also be susceptible to exploitation by shrewd people.
That metaphor is useful for communication. However, it can be used for communicative purposes both "good" and "bad." Metaphor, you could say, is a double-edged sword.
(I'm grateful to Eiro Robustos for stimulating thoughts.)
[15.] That "exchange" would be the act of giving someone his life and receiving his car in return.
[16.] And not just him: James Buchanan, with his "politics as exchange" and "conceptual unanimity," is another notable example.
[17.] See Bruno Leoni, Freedom and the Law, expanded 3d ed. (Indianapolis, IN: Liberty Fund, [1961] 1991) and Bruno Leoni, Law, Liberty and the Competitive Market, Carlo Lottieri, ed. (New Brunswick, NJ: Transaction Publishers, 2009).
[18.] See for instance, Leoni, Law, Liberty and the Competitive Market, pp. 180, 208.
[19.] What constitutes consent isn't always unambiguous, and the parties to a market exchange aren't always the only people it affects. Still, most of the time what constitutes consent is clear, and when private property rights are extensive, external effects are insignificant. So "consensual and net beneficial" it is.
[20.] Some people distinguish "libertarians" and "classical liberals." I don't, and while the former term has the disadvantage of sounding like it belongs to a comic- book character, it has the advantage of being one word instead of two. Thus my essay uses the term libertarian.
[21.] Again, in expectation and absent external effects.
[22.] This example is of course hypothetical. I am not suggesting that parties are often in the positions described. The point is that an arrangement not consented to can in principle create net benefits, and that is the only point.
[23.] But since consent implies the creation of net benefits, it does not make to sense to talk about arrangements that were consented to but do not create net benefits (in expectation and absent external effects).
[24.] Leoni, Freedom and the Law, p. 229.
[25.] Leoni, Freedom and the Law, p. 30.
[26.] Ibid. p. 32.
[27.] Ibid. p. 35.