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