Introduction

Abstract

It is well known that when there are differences in the comparative advantages of the members of a society, these members can gain from trading together. It is also well known that before gains from trade can be realized communication among trade participants is required to determine which exchange of goods (transactions) must take place. To facilitate the required communication, an organization is needed, which we shall call the market. If there are no changes in comparative advantages after they were determined during the first period, no communication, and no organization (market) to facilitate it is necessary afterwards.

The greatest improvement in the productive powers of labor, and the greater part of the skill, dexterity, and judgement with which it is anywhere directed, or applied, seem to have been the effects of the division of labor.

Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Vol 1, p 4, Homewood, Illinois: Richard D. Irwing, 1776, 1963.

The economic problem of society is mainly one of rapid adaptation to the changes in particular circumstances of time and place.

Friedrich Hayek, “The Use of Knowledge in Society,” American Economic Review, 35 (September 1945), p. 524.