Christianity and Economics, Part 7: The Benefits of Voluntary Exchange

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The possibility of voluntary exchange opens up numerous benefits for mankind. First, it leads to the specialization and division of labor, which in turn leads to increased productivity, wealth, and standard of living for each person. Secondly, voluntary exchange encourages peaceful relationships and moral behavior.

Imagine what life would be like if no one was permitted to exchange goods or services with others. Immediately, every business would cease to operate. Not only could no one go to work (an exchange of services), but no goods could be sold. If you wanted clothes, you would have to raise the sheep, spin the wool, and sew them yourself. If you wanted to eat, you would have to raise your own animals, grow your own garden, and fix every meal from scratch. If you needed to clear your land to begin farming, you would have to do that yourself. If you wanted a tractor to help you, you would have to make your own metal, make you own tools, shape your own parts, refine your own oil, etc. It doesn’t take long to imagine how difficult such a lifestyle would be. Without exchange, it would be nearly impossible to fulfill God’s charge for us to “fill the earth and subdue it” (Gen. 1:28).

The possibility of exchange means we can produce for others instead of producing only for ourselves, and we can benefit from the knowledge, resources, and services of others instead of relying solely on our own abilities. This in turn opens up the possibility for the specialization and division of labor.

The Division of Labor

The phrase “division of labor” refers to different people specializing in the production of different goods and services. Some people are farmers, some are teachers, some are artists, some repair cars, some are doctors, some are professional basketball players. People can only specialize in a particular field of labor because of the possibility of exchange.

When God created the world, he filled it with variety. Some places were created with more precious metals than others (cf. Gen. 2:11-12). Some places were created with more timber than others (cf. 1 Kings 5:6). People were also created with variety. When God created a helper for Adam, he did not clone an exact replica of Adam, but rather he created Eve, who’s uniqueness made her a helper fit for him (Gen. 2:20-25). Every person has their own unique strengths and weaknesses. Some are more skilled at keeping sheep, and some are more skilled at gardening (cf. Gen. 4:2-3). Some are skilled at raising livestock, some are skilled at playing musical instruments, and some are skilled at metalworking (cf. Gen. 4:20-22). On multiple occasions Paul refers to the uniqueness of different people’s strengths as an important asset for the work of the church (cf. Rom. 12:4-8; 1 Cor. 12; Eph. 4:11-12).

Because people are created with a variety of skills and interests and with access to different natural resources, some people will be more suited to certain lines of work than others. This variety means people will tend to specialize in those trades where they are more productive than others.

Increased Production

At this point it is critical to make a few important observations. First of all, observe that the existence and development of the division of labor is directly tied to increased productivity. People can produce more when they can develop their skills in those areas that uniquely align with their God-given skills and with the resources that they have access to. Or to state the same truth in the opposite manner, everyone would produce less if they all had to be generalists and were unable to focus their efforts in those areas where they are more naturally skilled.

Secondly, it is important to notice that this increased productivity from the division of labor can only exist when people are free to trade for the things they want, but cannot produce as effectively. For example, it makes sense for a farmer to focus on raising produce, only because he can trade with a manufacturer for the tractor he wants. It makes sense for the manufacturer to focus his labor on making tractors, only because he can trade for the food his family needs to eat. If the opportunity for voluntary exchange were not there, both individuals would have to spend time raising food for their families, and spend time making their own tools.

It is the possibility of exchange that leads to the development of the division of labor. The division of labor enables everyone to be more productive and consume more than they could if they tried to produce everything for themselves.

Peaceful Relationships and Moral Behavior

The freedom to exchange goods does not guarantee that no one will ever steal or threaten another person. It does not guarantee that everyone will act ethically. Nor does it guarantee that everyone will make good and wise decisions. But when people see benefit that results from voluntary trade with others, they have an incentive to maintain those voluntary relationships which are necessary for voluntary exchange to take place.

A shrewd businessman may be tempted to increase his profits by using unethical or unwise means. But unethical behavior seldom pays off in the long run. When people choose to take actions that harm their relationships with others, they limit their opportunities for voluntary exchange. This in turn limits their opportunity enjoy the benefit that results from those exchanges. People are more likely to engage in a trade when they trust that the other person is acting with integrity, because trustworthiness lowers the risk of making an unprofitable trade due to deception.

This truth is continually illustrated in the book of Proverbs, which teaches that those who act ethically, and look out for the needs of others, will tend to enjoy more material blessings. In describing the benefits of wisdom, the book of Proverbs states:

Long life is in her right hand;
in her left hand are riches and honor.
Her ways are ways of pleasantness,
and all her paths are peace.

Proverbs 3:16-17

Later in the book we read:

Riches and honor are with me [Wisdom]
enduring wealth and righteousness.

Proverbs 8:18

On the other hand, those who act dishonestly will hurt themselves in the long run.

Treasures gained by wickedness do not profit.

Proverbs 10:2a

Whoever is greedy for unjust gain troubles his own household,
but he who hates bribes will live.

Proverbs 15:27

Bread gained my deceit is sweet to a man,
but afterward his mouth will be full of gravel.

Proverbs 20:17

The getting of treasures by a lying tongue
is a fleeting vapor and a snare of death.

Proverbs 21:6

These truths are confirmed as we consider the economic benefit of voluntary exchange, and come to realize the importance of maintaining good relationships and ethical business practices which are necessary to facilitate voluntary interactions.

God’s Law and God’s Blessings

By considering the economics of voluntary exchange, we can draw the following conclusions:

  • God has given us numerous instructions about how to use the earth’s resources. The Bible is full of prohibitions against theft. From these we can conclude that God desires for all exchange of goods to be voluntary in nature (Part 5)
  • Voluntary exchange does not cause one person to “win” at another person’s expense. Voluntary exchange is always expected to be mutually beneficial (Part 6)
  • Voluntary exchange has the ability to create wealth, even with a fixed pool of resources. This is true because people value things differently from one another (part 6)
  • Voluntary exchange opens the door to greater productivity through the division of labor
  • Voluntary exchange allows everyone’s standard of living to increase, because it allows people to specialize in producing those goods and services where they are relatively more productive, and to trade for those goods and services which they are relatively less productive at providing for themselves.
  • The process of wealth creation and the development of a further division of labor will increase as more and more voluntary exchanges take place. On the contrary, wealth will decrease and the division of labor will shrink when goods are not exchanged voluntarily.
  • Voluntary exchange encourages peaceful relationships and ethical behaviors which are necessary to facilitate those exchanges.

Ultimately, through the study of economics we can see God’s wisdom, who has given laws which help us to be more productive, not less. He gave us moral laws which lay the foundations for economic prosperity and the elimination of poverty.

On the other hand, all of this increase in standard of living, development of the division of labor, and encouragement of peaceful relationships and ethical behavior are contingent on exchanges being made voluntarily. These benefits will only be enjoyed if people are free to trade the things they have for things they want more. Although no human institution can guaranty peaceful relationships and ethical behavior, human institutions can certainly discourage peaceful relationships and ethical behavior. They do this when they ignore God’s laws about theft, and seek to control other people’s ability to use and trade their possessions as they choose. When people try to rule over other people’s resources, they turn their back on the economic blessings that would otherwise be enjoyed through submission to God’s wisdom.

A ruler who lacks understanding is a cruel oppressor,
but he who hates unjust gain will prolong his days.

Proverbs 28:16