Reframing Economics

Reframing Economics

Economic Action as Imperfect Cooperation

Roger A. McCain

The objectives of this book are twofold. Firstly, it proposes that economics should be defined as a study of imperfect cooperation. Secondly, it elucidates the continuities that extend from classical political economy through the neoclassical, Keynesian, and modern economics of the twenty-first century.

Chapter 4: Exchange: how difference enriches us

Roger A. McCain

Subjects: economics and finance, game theory, history of economic thought, methodology of economics


In this part of the book, we are concerned with the relation between affluence and interdependence. An old saying has it that "fair exchange is no robbery," and in fact, exchange, per se, is a form of interdependence that can make both sides better off. Of course, common sense has known this for centuries, but it was not until the late 1800s that economists developed their modern theory of exchange. The problem is that in exchange, per se, the benefits are subjective. Each person has something he or she likes better than what he or she gave up, but "likes better" is a subjective state of mind. How can we base our theory on subjective states of mind? The classical economists, from Smith through Mill, would not take this step, but in the later 1800s, the founders of neoclassical and Austrian economics did take the step of incorporating subjective states of mind in their new theory of exchange. On the one hand, trade has existed in human society for a very long time. We have evidence of stone tools made from stone formations in Switzerland that have been found as widely in the old world as Eastern Siberia and South Africa. Presumably they got there by exchange - exported from Switzerland! On the other hand, exchange played very little part in the daily lives of most people.

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