Destutt de Tracy on the mutually beneficial nature of exchange (1817)

Antoine Louis Claude, Comte Destutt de Tracy

In his Treatise on Political Economy (1817) which was so admired by Thomas Jefferson, the French revolutionary politician and republican Destutt de Tracy (1754-1836) argues that both parties to a voluntary exchange benefit (i..e profit) from the same transaction:

(A)n exchange is a transaction in which the two contracting parties both gain. Whenever I make an exchange freely, and without constraint, it is because I desire the thing I receive more than that I give; and, on the contrary, he with whom I bargain desires what I offer more than that which he renders me. When I give my labour for wages it is because I esteem the wages more than what I should have been able to produce by labouring for myself; and he who pays me prizes more the services I render him than what he gives me in return.

It is a fundamental argument put forward by socialists that an exchange benefits one party at the expense of the other party, in other words, that the exchange is not an equal one because “profits” are made. In the Marxist lexicon, this is the origin of the exploitation of the workers by the capitalist class through the system of wage labour. Free market economists have rejected this argument from the very beginning, but the classical school represented by Adam Smith and David Ricardo found it hard to make a convincing case because they believed two things of “equal something” were being exchanged. These “equal somethings” might be labour, utility, or something else of “value”. Another school of economic thought, the French liberal school had a different perspective where individuals valued goods and services differently, which was the reason why one individual would exchange something on which s/he placed a lower value (compared to other goods and services) for something on which s/he placed a higher value. The trick was to find another person who had the opposite set of values so an exchange might take place. This of course is one of the functions of “markets”, namely to bring these different people together so trades can take place efficiently. Tracy was one of the French school of economists who developed this insight as early as 1817, well before the Austrians and Marginalists of the 1870s revolutionised economic theory by introducing the idea of subjective rather than objective value.