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which case the community would have lost more by having a bad smith than they gained in a better miller; or else F, G, or some other person hardly more competent, must have taken the part of smith, D acting as his substitute in the post thus vacated, an arrangement which might have proved equally wasteful as regards the productivity of the community. Evidently it is desirable that each person should undertake, not necessarily that work which he can do better than any other man, or that work which he can do better than any other work, but that work which, if he undertake it, permits the best disposal of the productive powers of the rest of the community.

§ 2. But what force will impel each man to undertake the work which it is best for the community that he should do? We are not at liberty to assume that any man will sacrifice any private gain he can secure to serve the general good. We can easily understand why A is induced to choose farming, though he would have also made the best smith or carpenter, for we assumed his superiority as farmer to be greater than his superiority as smith or carpenter, so that by taking to farming he will have a larger absolute surplus of goods for exchange against other goods than if he had chosen to be smith or carpenter.

But turn to the case of E, the smith. It may well have been the fact that E would not merely have

made a better miller than D, but that he might even have made a somewhat better miller than he made smith in the sense that after satisfying his own needs he would have had a larger surplus-product available for exchange with the products of the others. How is he induced to accept a post which seems less profitable for him than the post of miller? The fact, however, is that, though as miller he might have made a somewhat larger surplus for exchange, his choice of this work would have caused an arrangement of other kinds of work so disadvantageous as to reduce the quantity of other goods which he could get in exchange for his surplus of miller's goods to a smaller amount than he can get for a smaller absolute surplus of smith's goods. So, following his personal gain, he prefers his work of smith. Similarly, all the other members of our group are impelled to choose that work which at once brings them the greatest gain and conduces to the greatest wealth of the group, choosing not always the work they can do best, but the work which it is socially best for them to do.

§3. This is a simple statement of the true economy of a laissez-faire society. The accurate adjustment of this economy is seen to rest upon the single condition of Free Exchange. Interfere with that at any point or in any degree, and the real income of the community as a whole and of each member is reduced. Suppose, for example, that our miller D,

conceiving a dislike for A, charges him a higher price than B or C for grinding his wheat, or exercises a similar preference in exchanging bread for the product of the carpenter, the smith, or the tailor. The effect might be to drive A from farming, where we saw his work was most serviceable to the group, into carpentering or tailoring, where it would be less serviceable. So with any other preference exercised by D or any other person in the terms of exchange. Such preference would injure the aggregate productivity of the group, and each member would suffer.

The recipient of such a preference might seem to gain; but part of that gain would be offset by a loss he would suffer in his exchange relations with the rest of the injured community. Moreover, such preference here assumed, in order to test its result, is not a valid hypothesis in a society supposed to be actuated by self-seeking motives. For D, or any person, thus venting a grudge or bestowing a favour, is sacrificing his own personal gain, for this discriminative conduct, impairing the general economy, reacts injuriously on him in his exchanges. If the result of his action is to drive A from farming and put E or F in his place, he will have to pay more for grain, owing to the reduced productivity of the farmers.

§ 4. So long as the community is so small that' there is not work enough for more than one carpenter,

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tailor, shoemaker, etc., this economy of Free Exchange works with some considerable friction. It would not be easy to know that the right man was acting as smith, carpenter, or tailor, nor would it be easy to know that he was not exchanging his goods against other goods at a higher rate than he ought. As long as a tailor or a carpenter had a "monopoly" of the trade, he could only be prevented from arbitrarily raising the rate at which he would exchange a coat or a table against flour or other goods by forcing the others to try and make their own coats or tables, or else to do without these conveniencesboth of them expensive checks.

Hence, though even in the simplest society, freedom of exchange does conduce to the best economy for all and each, in order to function effectively, direct competition must support the power of substitution. If A were the only wheat grower, he might use his power to exchange his wheat too dearly against coats, boots, or furniture, and so impair the general productivity by forcing D, E, F, etc., either to spend part of their time in cultivating wheat land or to consume less food than formerly, and so to damage their general efficiency. The existence of direct competition between A, B, and C prevents this waste; and since each in his turn gains from the maintenance of the maximum efficiency of the group when he comes to exchange his surplus wheat, the competition or rivalry between these

farmers does not prevent our recognising them as co-operative members in the general industrial process.

§ 5. Next let us suppose the settlement grows more numerous, and some of the farmers decide upon crossing the creek to cultivate land along the other bank. They are accompanied by one or more members of the other trades, and they set up a separate village on the other side. Intercourse is kept up between the villages; the villages, as villages, do not trade with one another, but the individual villagers do. It evidently remains desirable for each and all that this intercourse should continue quite free. To place a toll upon goods crossing the river because their producers lived on a different side of the stream would evidently be as foolish and as injurious as to put a barrier upon the free intercourse between these same producers when they occupied different streets in the same village.

The real trade is entirely conducted between individual members of this split community, and it is advantageous for each of them to buy and sell most freely on both sides of the stream. If one chooses for any purpose to assess separately the aggregate wealth of each of the two villages, it will be found to be greatest in proportion as this perfect freedom is secured. Any barrier set upon the transport either of persons or goods must, by impairing freedom of exchange, impair the real income obtained through

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