Welfare Implications of Specialisation and Exchange

Abstract

Almost all of Chapter 1 was concerned with identifying underlying forces of supply and demand which could stimulate exchange. Exchange is, as we emphasised at the outset, a two-way process, and implicit in all we have said so far has been the presumption that exchange is mutually beneficial. After all, if it is not mutually beneficial, it suggests that one of the parties to the transaction ends up worse off after the exchange than before. Although there may be special circumstances under which this may occur, as a general rule it seems highly implausible. Our task now, therefore, is to make the gains from specialisation and exchange more explicit. Not only is this necessary to round off our review of the determinants of exchange, but it is also clearly a prerequisite to any assessment of the net benefits or costs associated with reducing the opportunities for exchange, and resisting the specialisation process.